Proposed Rule2021-11759
Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers Through Fedwire
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 11, 2021
Issuing agencies
Federal Reserve System
Abstract
The Board is proposing amendments to Regulation J to govern funds transfers through the Federal Reserve Banks' (Reserve Banks) new FedNow\SM\ Service by establishing a new subpart C. The Board is also proposing changes and clarifications to subpart B, governing the Fedwire Funds Service, to reflect the fact that the Reserve Banks will be operating a second funds transfer service in addition to the Fedwire Funds Service, as well as proposing technical corrections to subpart A, governing the check service.
Full Text
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[Federal Register Volume 86, Number 111 (Friday, June 11, 2021)]
[Proposed Rules]
[Pages 31376-31402]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-11759]
[[Page 31375]]
Vol. 86
Friday,
No. 111
June 11, 2021
Part II
Federal Reserve System
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12 CFR Part 210
Collection of Checks and Other Items by Federal Reserve Banks and Funds
Transfers Through Fedwire; Proposed Rule
Federal Register / Vol. 86 , No. 111 / Friday, June 11, 2021 /
Proposed Rules
[[Page 31376]]
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FEDERAL RESERVE SYSTEM
12 CFR Part 210
[Regulation J; Docket No. R-1750]
RIN 7100-AG16
Collection of Checks and Other Items by Federal Reserve Banks and
Funds Transfers Through Fedwire
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Proposed rule, request for comment.
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SUMMARY: The Board is proposing amendments to Regulation J to govern
funds transfers through the Federal Reserve Banks' (Reserve Banks) new
FedNow\SM\ Service by establishing a new subpart C. The Board is also
proposing changes and clarifications to subpart B, governing the
Fedwire Funds Service, to reflect the fact that the Reserve Banks will
be operating a second funds transfer service in addition to the Fedwire
Funds Service, as well as proposing technical corrections to subpart A,
governing the check service.
DATES: Comments must be submitted by August 10, 2021.
ADDRESSES: You may submit comments, identified by Docket No. R-1750;
RIN 7100-AG16, by any of the following methods:
<bullet> Agency Website: <a href="http://www.federalreserve.gov">http://www.federalreserve.gov</a>. Follow the
instructions for submitting comments at <a href="http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm">http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm</a>.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#abd9ceccd885c8c4c6c6cec5dfd8ebcdcecfced9cac7d9ced8ced9ddce85ccc4dd"><span class="__cf_email__" data-cfemail="dba9bebca8f5b8b4b6b6beb5afa89bbdbebfbea9bab7a9bea8bea9adbef5bcb4ad">[email protected]</span></a>. Include the
docket number and RIN in the subject line of the message.
<bullet> Fax: (202) 452-3819 or (202) 452-3102.
<bullet> Mail: Ann E. Misback, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
All public comments will be made available on the Board's website
at <a href="http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm">http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm</a> as
submitted, unless modified for technical reasons or to remove sensitive
personal information at the commenter's request. Public comments may
also be viewed electronically or in paper in Room 146, 1709 New York
Avenue NW, Washington, DC 20006, between 9:00 a.m. and 5:00 p.m. on
weekdays.
FOR FURTHER INFORMATION CONTACT: Jess Cheng, Senior Counsel (202) 452-
2309, Gavin L. Smith, Senior Counsel (202) 452-3474, Legal Division, or
Ian C.B. Spear, Manager (202) 452-3959, Kirstin E. Wells, Principal
Economist (202) 452-2962, Division of Reserve Bank Operations and
Payment Systems; for users of Telecommunications Device for the Deaf
(TDD) only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
Instant payment services have emerged globally over the past two
decades to address the enhanced speed and convenience expected by the
public for payment transactions in modern digital economies. Instant
payments allow individuals and businesses to send and receive payments
at any time of the day, on any day of the year, and to complete those
payments within seconds (from the end user perspective) such that the
beneficiary has access immediately to final funds, meaning funds they
can use at that time. Beyond speed and convenience, instant payments
can yield real economic benefits for individuals and businesses by
providing them with more flexibility to manage their money and allowing
them to make time-sensitive payments whenever needed. In light of these
potential benefits, there is broad consensus within the U.S. payment
community that, just as real-time services have become standard for
other everyday activities, instant payment services have the potential
to become widely used, resulting in a significant and positive impact
on the U.S. economy.
In 2019, the Board issued a Federal Register notice announcing that
the Reserve Banks would develop a new interbank 24x7x365 real-time
gross settlement service with integrated clearing functionality, called
the FedNow Service, to support instant payments in the United States
(the 2019 Notice). The Board's determination was based on the public
benefits that the service would provide and the Board's assessment that
such a service would meet the requirements of the Depository
Institutions Deregulation and Monetary Control Act of 1980, as well as
the Board's criteria for new or enhanced Federal Reserve payment
services.\1\ The FedNow Service will operate alongside similar services
provided by the private sector to provide core infrastructure
supporting instant payments in the United States. In the 2019 Notice,
the Board also requested comment on all aspects of the planned service.
One proposed aspect was that banks would be required to make funds
associated with individual instant payments available to their end-user
customers immediately after receiving notification from the service
that an instant payment had settled.
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\1\ See ``Federal Reserve Actions To Support Interbank
Settlement of Faster Payments, Request for Comments,'' 84 FR 39297
(Aug. 9, 2019).
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In August 2020, the Board issued a subsequent Federal Register
notice describing the FedNow Service details (the 2020 Notice), based
on additional analysis informed by the comments received in response to
the 2019 Notice.\2\ In that notice, the Board approved, among other
things, the aspect of immediate funds availability proposed in the 2019
Notice. The Board also indicated that it was assessing applicable laws
and regulations, and, to the extent changes to the Board's regulations
were needed, including to clarify funds availability, the Board would
request public comment.
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\2\ ``Service Details on Federal Reserve Actions To Support
Interbank Settlement of Instant Payments,'' 85 FR 48522 (Aug. 11,
2020).
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The Board has completed its assessment with respect to Regulation J
and is issuing this request for comment on the regulation incorporating
changes to provide a legal framework for the FedNow Service. The
Board's proposed amendments to Regulation J establish a new subpart C
to govern funds transfers made through the FedNow Service and amend the
title of the regulation. The Board is also proposing technical changes
and clarifications to subpart B, which governs funds transfers through
the Fedwire Funds Service, to reflect the fact that the Reserve Banks
will be operating two funds transfer services. The Board is further
proposing technical corrections to subpart A of the regulation, which
governs the collection of checks and other items by the Reserve Banks.
II. Overview of Proposed Regulation J Amendments
Subpart B of Regulation J currently specifies the rules applicable
to funds transfers handled by Reserve Banks over the Fedwire Funds
Service. Subpart B would not apply to transfers over the new FedNow
Service, which will be a separate funds transfer service operated by
the Reserve Banks. The Board is proposing a new subpart C of Regulation
J to provide a comprehensive set of rules governing funds transfers
over the FedNow Service. As it did for subpart B, the Board proposes to
adopt a commentary to subpart C that would constitute a Board
interpretation of the regulation.
In general, the proposed new subpart C of Regulation J specifies
the terms and conditions under which Reserve Banks
[[Page 31377]]
will process funds transfers over the FedNow Service, as well as grants
the Reserve Banks authority to issue an operating circular for the
FedNow Service, which would detail more specific terms and conditions
governing the FedNow Service consistent with the proposed subpart.
Additionally, proposed subpart C's terms of service include a
requirement for a FedNow participant that is the beneficiary's bank to
make funds available to the beneficiary immediately after it has
accepted the payment order over the service. Proposed new subpart C
also expands and clarifies the applicability of the Uniform Commercial
Code (UCC) Article 4A to all transfers over the FedNow Service, subject
to a limited number of modifications and clarifications that are
consistent with the purposes of UCC Article 4A.
UCC Article 4A, which has been adopted in all 50 states, provides
comprehensive rules governing the rights and responsibilities of the
parties to funds transfers. The rights and responsibilities covered in
UCC Article 4A include those with respect to the receipt, acceptance or
rejection, and execution of a payment order and settlement of a payment
obligation; liability for the late, erroneous, or improper execution of
funds transfers; the risks of loss associated with an unauthorized
payment order; the obligation to pay for and the right to receive
payment for a payment order; and the effect of payment by funds
transfer on any underlying obligation between an originator and a
beneficiary of a funds transfer.
The Board incorporated UCC Article 4A, as approved by the American
Law Institute and the National Conference of Commissioners on Uniform
State Laws in 1989, into Regulation J for purposes of the Fedwire Funds
Service and proposes to do the same for the FedNow Service. The Board
believes that this incorporation is necessary to ensure that the law
applicable to all transfers over the FedNow Service is consistent,
predictable, and clear. The Board also proposes to replace the
currently incorporated 1989 version of UCC Article 4A with the more
recent 2012 version and to set forth those provisions in Appendix A of
part 210, rather than in Appendix B of subpart B where they are
currently set forth.\3\
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\3\ UCC Article 4A has been amended once, in 2012. The 2012
amendments, as approved by the American Law Institute and the
National Conference of Commissioners on Uniform State Laws, which is
now also known as the Uniform Law Commission, were necessary to
retain the coverage of non-consumer remittance transfers by UCC
Article 4A in light of revisions to the Electronic Fund Transfer Act
(``EFTA''), as amended by the Dodd-Frank Wall Street Reform and
Consumer Protection Act. Those statutory changes brought certain
non-consumer remittance-related fund transfers under the scope of
the EFTA and thus, absent amendment, would have been explicitly
carved out from coverage by UCC Article 4A. Regulation J was also
amended in 2012 to similarly clarify that its provisions continue to
apply to a Fedwire Funds transfer even if the funds transfer also
meets the definition of ``remittance transfer'' under the EFTA.
``Collection of Checks and Other Items by Federal Reserve Banks and
Funds Transfers Through Fedwire: Elimination of ``As-of
Adjustments'' and Other Clarifications,'' 77 FR 21854 (Apr. 12,
2012).
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Other minor changes are also proposed to Regulation J to make
clarifying amendments to subpart B and technical corrections in subpart
A. The Board does not believe that the proposed amendments to subparts
A and B would impose additional operating burdens on any parties.
The Board requests comment on all aspects of the proposed amendment
to Regulation J and the specific questions posed below.
III. Section-by-Section Analysis
A. Subparts A and B
The Board is proposing technical corrections in subpart A of
Regulation J to update cross-references to other regulations that are
no longer current.
Additionally, the Board is proposing amendments to subpart B,
governing funds transfers through the Fedwire Funds Service, to reflect
the fact that the Reserve Banks will be operating two separate funds
transfer systems with the launch of the FedNow Service and distinguish
between the two services. For example, the proposed amendments include
clarifications to Sec. 210.25(b) with respect to subpart B's scope of
application and modifications to the definitions of the following
terms: Beneficiary, beneficiary's bank, payment order, receiving bank,
and sender. These proposed amendments are intended to clarify that the
provisions of subpart B are limited to payment orders and parties to a
funds transfer that are sent through the Fedwire Funds Service; payment
orders and parties to a funds transfer that are sent through the FedNow
Service, for example, would not be governed by subpart B.
Additionally, the proposed amendments to subpart B include changes
to update Sec. 210.25(c), which authorizes Reserve Banks to issue
operating circulars consistent with the subpart in connection with the
Fedwire Funds Service. The proposed revisions explicitly authorize
Reserve Banks to issue operating circulars that specify the time and
method of receipt, execution, and acceptance of a payment order and
settlement of a Reserve Bank's payment obligation for purposes of UCC
Article 4A; specify service terms governing ancillary features of the
Fedwire Funds Service; and provide for the acceptance of documents in
electronic form to the extent any provision in UCC Article 4A requires
an agreement or other document to be in writing.
The proposed amendments to subpart B further include minor changes
to Sec. 210.28(b)(3) to provide that the security interest that a
sender grants to a Reserve Bank is with respect to all of the sender's
assets in the possession of, as well as in the control of, or held for
the account of, the Reserve Bank; additional revisions are proposed to
the commentary to that section to clarify its description of relevant
UCC Article 4A provisions.
Additionally, the proposed amendments to subpart B include a minor
change to Sec. 210.30 to clarify that a sender may not send a payment
order to a Reserve Bank that specifies an execution date, nor may it
specify a payment date, that is later than the day on which the payment
order is issued, unless the Reserve Bank agrees with the sender in
writing to follow such instructions.
The proposed amendments to subpart B also include a clarifying
revision to Sec. 210.32, which governs the payment of compensation by
Reserve Banks in the form of interest. Section 210.32 provides that,
when a Reserve Bank is obligated to pay compensation to another party
in connection with its handling of a funds transfer under UCC Article
4A, the Reserve Bank shall pay compensation in the form of interest to
its sender, its receiving bank, its beneficiary, or another party to
the funds transfer that is entitled to such payment. The proposed
revisions refer to these payments as ``compensation'' rather than
interest payments. The Board believes this clarification would help
remove any confusion that such payment is related to any purpose other
than compensation, such as monetary policy transmission.
Finally, the Board is proposing technical revisions in the
commentary to subpart B to correct cross-references to UCC Article 1
and to update cross-references to statutes and other regulations that
are no longer current.
B. Subpart C--Funds Transfers Through the FedNow Service
The Board is proposing to amend Regulation J to establish a new
subpart C governing funds transfers over the FedNow Service. Many of
the concepts embodied in the proposed subpart C are similar to those
currently in subpart B
[[Page 31378]]
of Regulation J. Like the Fedwire Funds Service, the FedNow Service is
a real-time gross settlement system and a funds-transfer service under
UCC Article 4A. However, a number of the proposed subpart C provisions
have been tailored to the nature of the FedNow Service where it differs
from that of the Fedwire Funds Service.
In particular, the FedNow Service is designed for the end-to-end
transfer to be completed in a matter of seconds, as described in the
2020 Notice. This means that the beneficiary's bank would agree, as
provided in proposed subpart C, that it will make funds available to
the beneficiary immediately after it has accepted the payment order.
Another difference between the FedNow Service and the Fedwire Funds
Service is that the FedNow Service will accommodate participants that
choose to settle their activity over the service in the master account
of a correspondent bank. In contrast, participants in the Fedwire Funds
Service are limited to settling their activity over that service in
their own master account. The terms of proposed subpart C reflect the
fact that FedNow Service will support this additional mechanism for
settling obligations that arise between Reserve Banks and FedNow
participants.
Further, unlike the Fedwire Funds Service, which is designed to
serve primarily as a large-value funds transfer system between
institutional users, the FedNow Service is designed to also accommodate
consumer use. Therefore, in the event that a transfer over the FedNow
Service meets the definition of ``electronic fund transfer'' under the
Electronic Fund Transfer Act (EFTA), proposed subpart C provides that
it would apply to the transfer but the EFTA would prevail to the extent
of any inconsistency, as discussed further later.
Section 210.40 Authority, Purpose, and Scope
This proposed section summarizes the Board's authority to adopt
this regulation and provides a description of how the subpart is
organized. Similar to the rules governing the Fedwire Funds Service in
subpart B, new subpart C would incorporate those provisions of UCC
Article 4A (as set forth in an appendix to Regulation J) into subpart C
that are not inconsistent with the provisions set forth expressly in
subpart C.
Specifically, proposed subpart C provides that UCC Article 4A
applies to all funds transfers over the FedNow Service, including a
transfer from a consumer originator or a transfer to a consumer
beneficiary that is carried out through the FedNow Service. Such a
consumer transaction could potentially be subject to the EFTA. By its
terms, UCC Article 4A would not apply to a funds transfer any part of
which is governed by the EFTA. Therefore, absent this proposed section
in subpart C, a number of important legal aspects with respect to these
consumer transfers over the FedNow Service could potentially lack clear
and consistent rules.
This proposed section provides that all transfers over the FedNow
Service, including those transfers any portion of which is governed by
the EFTA, are covered by subpart C (which incorporates UCC Article 4A
by reference); however, in the event of an inconsistency between the
provisions of subpart C and the EFTA, the proposed section provides
that the EFTA would prevail to the extent of the inconsistency. The
commentary accompanying this proposed provision in subpart C provides
an illustrative example. The Board believes this proposed provision is
necessary in order to provide a clear, consistent, and comprehensive
set of rules for all funds transfers over the FedNow Service,
consistent with the EFTA and the purposes of UCC Article 4A.
This proposed section also specifies the parties subject to
proposed subpart C with respect to the FedNow Service. These parties
would include senders that send payment orders to a Reserve Bank over
the service, receiving banks that receive payment orders from a Reserve
Bank over the service, beneficiaries that receive payment for payment
orders by means of a credit to their settlement account with a Reserve
Bank, and Reserve Banks that send or receive payment orders over the
FedNow Service.
For example, suppose that Payor has an account with Bank A and
instructs Bank A to pay $1,000 to Payee's account at Bank B, and Bank A
carries out Payor's instruction using the FedNow Service.\4\ Suppose
further that Bank A and Bank B maintain accounts on the books of
different Reserve Banks. In this example, the Reserve Bank of Bank A
and the Reserve Bank of Bank B would be intermediary banks; Bank A
would be the sender with respect to the payment order that it sends to
its Reserve Bank; Bank B would be the receiving bank with respect to
the payment order that it receives from its Reserve Bank.
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\4\ This example is only for illustrative purposes. Aspects of
the arrangement would be different, for example, if either of the
banks were to use an agent, service provider, or correspondent bank.
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In this example, the Reserve Banks of Bank A and Bank B would be
subject to proposed subpart C, because they are Reserve Banks sending
or receiving payment orders over the FedNow Service. It is possible
that a Reserve Bank may also be subject to subpart C in its capacity as
a beneficiary's bank with respect to a payment order (e.g., interbank
credit transfers between FedNow participants). For other capacities,
however, a Reserve Bank would not be a party to the funds transfer for
purposes of proposed subpart C and UCC Article 4A. For example, if a
sender settles its activity over the FedNow Service in the account of a
correspondent bank, the sender's Reserve Bank would be an intermediary
bank in the funds transfer chain, but the Reserve Bank of the
correspondent bank would not be a sender or receiving bank with respect
to the payment order and would not be a party to the funds transfer.
Under the proposed section, subpart C would also apply to any party
to a funds transfer sent through the FedNow Service that is in privity
(i.e., has a contractual relationship) with a Reserve Bank in the funds
transfer chain. Other parties to a funds transfer sent through the
FedNow Service (i.e., a party not in privity with a Reserve Bank, such
as Payor and Payee in the example above) would be covered by this
proposed subpart only under certain circumstances. If these remote
parties have notice that the FedNow Service might be used for their
funds transfer and that subpart C is the governing law with respect to
the transfer over the FedNow Service, then proposed subpart C would
govern their rights and obligations with respect to the FedNow Service.
However, it is possible for that remote party to expressly select by
agreement a governing law other than subpart C with respect to its
rights and obligations in connection with that transfer. For example,
Payor and Bank A in the example above could make an agreement selecting
the law of a particular jurisdiction, and not subpart C, to govern
rights and obligations between each other. In that event, the law of
that jurisdiction would govern those rights and obligations, and not
subpart C, even if the remote party (Payor) had notice that the FedNow
Service may be used and that subpart C is the governing law with
respect to the transfer over the FedNow Service.
Finally, this proposed section authorizes Reserve Banks to issue
operating circulars which would detail more specific terms and
conditions governing the FedNow Service consistent with the proposed
subpart.
[[Page 31379]]
Similar to the rules governing the Fedwire Funds Service in subpart B
and the proposed clarifying edits to subpart B, new subpart C would
authorize the Reserve Banks to issue operating circulars with respect
to the FedNow Service that may set cut-off hours and funds-transfer
business days; address security procedures offered by the Reserve Banks
to verify the authenticity of a payment order; specify format and media
requirements for payment orders; identify messages that are not payment
orders; specify the time and method of receipt, execution, and
acceptance of a payment order and settlement of a Reserve Bank's
payment obligation for purposes of UCC Article 4A; specify service
terms governing ancillary features of the FedNow Service; provide for
the acceptance of documents in electronic form to the extent any
provision in UCC Article 4A requires an agreement or other document to
be in writing; and impose charges for funds transfer services.
Reflecting aspects where the FedNow Service differs from the
Fedwire Funds Service, the proposed section further provides that
Reserve Bank operating circulars governing the FedNow Service may also
prescribe time limits for the processing of payment orders.
Section 210.41 Definitions
This proposed section defines the terms used in the regulation.
Similar to subpart B, proposed subpart C generally incorporates the
definitions set forth in UCC Article 4A (e.g., beneficiary,
intermediary bank, receiving bank, and security procedure), in some
instances with modifications. Specifically, the proposed subpart
modifies the definitions of five UCC Article 4A terms: Beneficiary,
beneficiary's bank, payment order, receiving bank, and sender. In
general, these modifications are intended to clarify that, for the
purposes of subpart C, these terms would be limited to payment orders
and parties in a funds transfer that are sent through the FedNow
Service. Parties to a funds transfer that is sent through the Fedwire
Funds Service, for example, would not be a ``beneficiary,''
``beneficiary's bank,'' ``receiving bank,'' or ``sender'' as those
terms are defined in proposed subpart C.
This proposed section also includes definitions of other terms not
defined in UCC Article 4A, including ``sender's settlement account,''
``receiving bank's settlement account,'' and ``beneficiary's settlement
account.'' These terms reflect the fact that a FedNow participant may
settle its activity over the FedNow Service in either its master
account with a Reserve Bank or, alternatively, the master account of a
correspondent bank with a Reserve Bank. Whether it is its own master
account or that of a correspondent, a FedNow participant would need to
designate a settlement account on the books of a Reserve Bank that the
Reserve Banks may use to settle the participant's activity over the
FedNow Service.
This proposed section also includes a definition of the term
``Federal Reserve Bank'' with respect to an entity, which is not a term
defined in UCC Article 4A. In instances where a FedNow participant
maintains an account with a Reserve Bank, this proposed section takes
an approach similar to the rules governing the Fedwire Funds Service in
subpart B. In those instances, the term ``Federal Reserve Bank'' with
respect to the FedNow participant means the Reserve Bank at which the
participant maintains an account. To reflect the fact that the FedNow
Service will also accommodate participants that choose to settle their
activity over the service in the master account of a correspondent
bank, the proposed definition also addresses instances where a FedNow
participant does not maintain a master account with a Reserve Bank. In
those instances, the term ``Federal Reserve Bank'' with respect to that
participant means the Reserve Bank in whose District the participant is
located, as determined under the procedure described in Part 204 of
this chapter (Regulation D), even if the participant is not otherwise
subject to that section. As noted above, the Reserve Bank of the
participant would be a party to the funds transfer, but the Reserve
Bank of its correspondent bank would not be a party to the funds
transfer.
Section 210.42 Reliance on Identifying Number
This proposed section provides that a Reserve Bank may rely on the
number in the payment order identifying the beneficiary's bank or the
beneficiary, consistent with UCC Article 4A. As a practical matter,
reliance on identifying numbers enables banks to more efficiently
process payment orders by automated means. Rather than manual
processing of payment orders with human reading of the contents of the
order, banks typically use machines to read orders that, using a
standard format, identify the beneficiary's bank by routing number or
the beneficiary by the number of a bank account, or by other
identifying number. This standard format might also allow for the
inclusion of additional information in the payment order (e.g., the
name of the beneficiary's bank or the beneficiary) that can be useful
for reference, even if not relied upon to process the payment order.
If a payment order contains both the identifying number and the
name of the beneficiary's bank or beneficiary supplied by the
originator of the funds transfer, it might be possible for a receiving
bank processing the order to detect an inconsistency and determine that
the name and number do not refer to the same party. UCC Article 4A
provides that a bank is under no duty to make such a determination that
the identifying number and name refer to the same party in processing
the payment order. If such a duty were imposed, the benefits of
automated payments would be significantly lost; these benefits include
the substantial economies of operation and the reduction in the
possibility of clerical error. Rather, UCC Article 4A allows receiving
banks to act on the basis of the identifying number, without regard to
name provided in the payment order, so long as the bank does not know
the name and number refer to different parties.
Consistent with UCC Article 4A, proposed Sec. 210.42 provides that
a Reserve Bank, as receiving bank, may rely on the routing number of
the beneficiary's bank specified in a payment order as identifying the
appropriate beneficiary's bank, even if the payment order identifies
another bank by name, provided that the Reserve Bank does not know of
the inconsistency. Similarly, a Reserve Bank, where it acts as the
beneficiary's bank, may rely on the number identifying a beneficiary,
such as the beneficiary's account number, specified in a payment order
as identifying the appropriate beneficiary, even if the payment order
identifies another beneficiary by name, provided that the Reserve Bank
does not know of the inconsistency.
The proposed section also serves to provide notice to nonbank
senders that send payment orders directly to a Reserve Bank through the
FedNow Service that the Reserve Bank may rely on the numbers in the
payment orders identifying the beneficiary's bank and the beneficiary.
Section 210.43 Agreement of Sender
Proposed Sec. 210.43 describes when an obligation to pay arises
for FedNow participants that send a payment order over the FedNow
Service and how that obligation is discharged. Under that proposed
section, when a sender sends a payment order to a Reserve Bank over the
FedNow Service and the Reserve Bank accepts the payment order, the
sender has an obligation to pay the
[[Page 31380]]
Reserve Bank for the amount of the payment order. This proposed section
further specifies that the obligation of the sender is paid by a debit
to the settlement account of the sender. This approach is generally
similar to that taken by subpart B for the Fedwire Funds Service, but
it has been adjusted to reflect the fact that the FedNow Service will
accommodate participants that choose to settle their activity over the
service in the master account of a correspondent bank. The proposed
section, therefore, provides that the sender authorizes its Reserve
Bank to obtain payment for a payment order by debiting, or causing
another Reserve Bank (i.e., the Reserve Bank of the correspondent bank,
if one is used) to debit, the amount of the payment order from the
settlement account.
In addition, this proposed section includes provisions addressing
overdrafts, taking an approach similar to that of subpart B, with
adjustments to reflect the fact that the participant activity over the
FedNow Service will settle in settlement accounts designated by the
FedNow participant. The proposed section establishes that a sender does
not have a right to an overdraft in its settlement account and sets out
the sender's obligations to ensure there are sufficient funds in its
settlement account and to cover any overdraft by the time the overdraft
becomes due and payable. This section also provides a Reserve Bank with
a security interest in the sender's assets held at any Reserve Bank to
secure any obligation owed and also specifies the actions a Reserve
Bank may take to recover the amount of an overdraft, including set-off
and realization of collateral. Finally, this proposed section clarifies
that settlement accounts could be subject to overdraft charges, where
applicable.
Section 210.44 Agreement of Receiving Bank
With respect to FedNow participants that receive payment orders
over the service and accept the order, Sec. 210.44 specifies how the
participant receives payment. The proposed section provides that for
payment orders that a receiving bank receives from a Reserve Bank over
the FedNow Service, payment for the order is made by credit to the
settlement account of the receiving bank. This approach is generally
similar to that taken by the rules governing the Fedwire Funds Service
in subpart B, with adjustments to reflect the fact that the FedNow
Service will accommodate settlement in a participant's own master
account or, if the participant chooses, the master account of a
correspondent bank. Specifically, the proposed section provides that
the receiving bank authorizes its Reserve Bank to pay for the payment
order by crediting, or causing another Reserve Bank (i.e., the Reserve
Bank of the correspondent bank, if one is used), to credit the amount
of the payment order to the settlement account.
The proposed section also includes a requirement for a FedNow
participant that is the beneficiary's bank to make funds available to
the beneficiary immediately after its acceptance of the payment order
over the service. As noted above, this requirement reflects the fact
that an end-to-end transfer over the FedNow Service is intended to be
completed in a matter of seconds. Under the proposed section, if a
FedNow participant accepts a payment order over the service, it must
pay the beneficiary by crediting the beneficiary's account, and it must
do so immediately after its acceptance of the payment order. The Board
specifically requests comment on whether the regulation should set out
specific time parameters to clarify the meaning of ``immediately'' as
used in this funds availability requirement and, if so, whether a
timeframe of within seconds or, alternatively, within one minute after
the bank has accepted the payment order would be reasonable.
Relatedly, the proposed section states that the rights and
obligations with respect to the availability of funds are also governed
by the Expedited Funds Availability Act (EFAA) and its implementing
regulation, Regulation CC. Regulation CC provides that funds received
by a bank by an electronic payment shall be available for withdrawal
not later than the business day after the banking day on which such
funds are received. The proposed new subpart C would require funds to
be made available on a more prompt basis than the availability
requirements of the EFAA and Regulation CC. Proposed Sec. 210.44
therefore clarifies that the EFAA and Regulation CC requirements
continue to apply independently of subpart C. The proposed commentary
provides an example where a beneficiary's bank has failed to satisfy
the immediate funds availability requirement under proposed subpart C,
even if it has satisfied its obligations under Regulation CC.
The proposed section also clarifies that the obligation for the
beneficiary's bank to provide immediate funds availability to the
beneficiary does not affect any liability of the beneficiary's bank to
the beneficiary, or any party other than a Reserve Bank, under UCC
Article 4A or other law. The Board believes that the bank-customer
relationship should be governed by existing law, rather than the funds
availability timing requirement that would apply to a FedNow
participant as a term of the service. The proposed commentary explains
that the timing requirement in this section does not create any new
rights that the beneficiary may assert against the beneficiary's bank
or otherwise alter any rights of the beneficiary under UCC Article 4A
or other applicable law.
Finally, the proposed section addresses certain circumstances in
which a FedNow participant that is the beneficiary's bank requires
additional time to determine whether to accept the payment order
because it has reasonable cause to believe that the beneficiary is not
entitled or permitted to receive payment. In those circumstances, if
the FedNow participant notifies its Reserve Bank that it requires
additional time, the FedNow participant would not be deemed to have
accepted the payment order at such time as would otherwise be
considered acceptance of the payment under proposed subpart C (i.e.,
when it receives payment from its Reserve Bank). The proposed
commentary provides an example of when this provision might apply: When
the beneficiary's bank has reasonable cause to believe that making
funds available to the beneficiary may violate applicable U.S.
sanctions. The Board specifically requests comment on whether this
proposed section is sufficient to cover the likely range of
circumstances where a FedNow participant may need additional time to
determine whether to accept a payment order.
Section 210.45 Payment Orders
This proposed section sets forth the terms under which a Reserve
Bank will accept payment orders from a sender over the FedNow Service.
Similar to the rules governing the Fedwire Funds Service in subpart B,
this proposed section provides that a sender must make arrangements
with its Reserve Bank before it may send payment orders over the FedNow
Service.
Also similar to subpart B, this proposed section provides that a
Reserve Bank may reject any payment order or impose conditions on the
acceptance of payment orders over the FedNow Service for any reason.
The proposed commentary provides examples of when rejections might
occur with respect to insufficient funds in the sender's settlement
account and the lack of a required agreement concerning security
procedures, which
[[Page 31381]]
mirror the commentary examples in subpart B. The proposed commentary
also includes a further example of when a rejection may occur: When a
payment order is not successfully processed within time limits
established by the Reserve Banks, which reflects the fact that the
FedNow Service is designed for the end-to-end transfer to be completed
in a matter of seconds.
This proposed section also provides terms with respect to the
selection of an intermediary bank for a transfer over the FedNow
Service. It takes a similar approach to that of subpart B with respect
to the Fedwire Funds Service, with adjustments to reflect that the fact
that for the FedNow Service, the Reserve Banks will be the only
intermediary banks in the funds transfer chain. Reflecting this
transaction structure for transfers over the FedNow Service, the
proposed section provides that a FedNow participant may not send a
payment order to a Reserve Bank that requires the Reserve Bank to issue
a payment order to an intermediary bank other than another Reserve
Bank. This proposed section also provides that a sender may not send a
value-dated payment order through the FedNow Service, unless the
Reserve Bank agrees with the sender in writing to follow such
instructions.
Section 210.46 Payment by a Federal Reserve Bank to a Receiving Bank or
Beneficiary
This proposed section addresses the timing of when a Reserve Bank
makes payment to a receiving bank (when the Reserve Bank is an
intermediary bank) or beneficiary (when the Reserve Bank is the
beneficiary's bank). It adopts a similar approach as that taken by
subpart B for the Fedwire Funds Service, but it has been adjusted to
reflect the fact that the FedNow Service will also accommodate
participants that choose to settle their activity over the service in
the master account of a correspondent bank. The proposed section,
therefore, provides that payment to a FedNow participant by Reserve
Banks is final at the earlier of the time when the amount of the
payment order is credited to the FedNow participant's settlement
account (which may be the participant's own master account or the
master account of its correspondent bank), or the time when the Reserve
Bank sends to the FedNow participant either a conforming payment order
or, in instances where the FedNow participant is the beneficiary, a
notice of the credit. This payment would be final and irrevocable when
made.\5\
---------------------------------------------------------------------------
\5\ This does not prevent FedNow participants from implementing
procedures to resolve erroneous payments, or impede the ability of
the receiving bank to initiate a new transfer to return funds in
certain circumstances.
---------------------------------------------------------------------------
Section 210.47 Federal Reserve Bank Liability; Payment of Compensation
This proposed section addresses liability of the Reserve Banks,
similar to the rules governing the Fedwire Funds Service in subpart B.
It provides that, in connection with its handling of a payment order, a
Reserve Bank shall not agree to be liable to a sender, receiving bank,
beneficiary, or other Reserve Bank for consequential damages resulting
from the Reserve Bank's failure to execute a payment order. This
proposed section is consistent with the presumption in UCC Article 4A,
under which damages for a receiving bank's failure to execute a payment
order that it was obligated to execute by express agreement do not
include consequential damages, unless they are provided for in an
express written agreement of the receiving bank. This proposed section
is not intended to affect the liability of parties more broadly. For
example, it is not intended to affect the ability of parties to a funds
transfer other than a Reserve Bank to agree to be liable for
consequential damages.
Finally, this proposed section provides that where a Reserve Bank
is obligated under UCC Article 4A to provide compensation in the form
of interest to another party in connection with its handling of a funds
transfer over the FedNow Service, the Reserve Bank may do so. In such
cases where a Reserve Bank provides compensation in the form of
interest, interest would be calculated in accordance with Article 4A.
This proposed section adopts rules similar to the rules governing the
Fedwire Funds Service in subpart B, with the proposed clarifying
amendments to subpart B described above.
IV. Request for Comment
The Board requests comment on all aspects of the proposed
amendments to Regulation J. The Board also requests comment on the
following specific questions:
1. The proposed regulation requires a FedNow participant that is a
beneficiary's bank to make funds available to the beneficiary
immediately after it has accepted the payment order over the FedNow
Service.
a. Should the Board set out specific time parameters to clarify the
meaning of ``immediately'' as used in this funds availability
requirement? Why or why not?
b. What would be the benefits and drawbacks of specifying that
``immediately'' as used in this requirement means that the
beneficiary's bank must make funds available to the beneficiary within
seconds or, alternatively, within one minute after it has accepted the
payment order over the FedNow Service? \6\ Or, is there another way for
the Board to specify the funds availability timeframe that is
consistent with improving the speed of the end-to-end process for an
instant payment service and continues to align with prevailing market
practices over time?
---------------------------------------------------------------------------
\6\ As a point of comparison, under the Faster Payments
Effectiveness Criteria adopted by the Faster Payments Task Force in
2015, a payment solution would be considered ``very effective'' in
satisfying the criterion of fast availability of good funds to the
payee if funds are available to the payee within one minute from
payment initiation. The Faster Payments Task Force was a broad and
inclusive group of payment industry stakeholders convened by the
Federal Reserve to collaboratively identify and evaluate alternative
approaches to implementing safe, ubiquitous, faster payments
capabilities in the United States. The Faster Payments Effectiveness
Criteria is available at <a href="https://fedpaymentsimprovement.org/wp-content/uploads/fptf-payment-criteria.pdf">https://fedpaymentsimprovement.org/wp-content/uploads/fptf-payment-criteria.pdf</a>.
---------------------------------------------------------------------------
2. The proposed regulation accommodates a feature of the FedNow
Service under which a FedNow participant that is the beneficiary's bank
may notify its Reserve Bank that it requires additional time to
determine whether to accept the payment order over the FedNow Service
because it has reasonable cause to believe that the beneficiary is not
entitled or permitted to receive payment. Are there other circumstances
where a beneficiary's bank should have additional time to determine
whether to accept a payment order? If so, what are those circumstances?
V. Competitive Impact Analysis
The Board conducts a competitive impact analysis when it considers
an operational or legal change, if that change would have a direct and
material adverse effect on the ability of other service providers to
compete with the Federal Reserve in providing similar services due to
legal differences or due to the Federal Reserve's dominant market
position deriving from such legal differences. All operational or legal
changes having a substantial effect on payments-system participants
will be subject to a competitive-impact analysis, even if competitive
effects are not apparent on the face of the proposal. If such legal
differences exist, the Board will assess whether the same objectives
could be achieved by a modified
[[Page 31382]]
proposal with lesser competitive impact or, if not, whether the
benefits of the proposal (such as contributing to payments-system
efficiency or integrity or other Board objectives) outweigh the
materially adverse effect on competition.\7\
---------------------------------------------------------------------------
\7\ Federal Reserve Regulatory Service, 7-145.2.
---------------------------------------------------------------------------
The Board does not believe that the proposed amendments to
Regulation J will have a direct and material adverse effect on the
ability of other service providers to compete effectively with the
Reserve Banks in providing similar services due to legal differences.
The proposed rule incorporates UCC Article 4A, with revisions to
reflect the nature of funds transfers over the FedNow Service and
consistent with the purposes of UCC Article 4A. The proposed amendments
do not govern similar services provided by private-sector providers.
The proposed amendments also do not include provisions that a private-
sector provider of similar services could not also adopt to similar
effect through rules or operating procedures. Therefore, the Board does
not believe that the proposed amendments would affect the competitive
position of private-sector providers vis-[agrave]-vis the Reserve
Banks.
VI. Administrative Law Matters
A. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board may not conduct
or sponsor, and a respondent is not required to respond to, an
information collection unless it displays a valid Office of Management
and Budget (OMB) control number. The Board reviewed the proposed rule
under the authority delegated to the Board by the OMB and determined
that it contains no collections of information under the PRA.\8\
Accordingly, there is no paperwork burden associated with the proposed
rule.
---------------------------------------------------------------------------
\8\ See 44 U.S.C. 3502(3).
---------------------------------------------------------------------------
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (the ``RFA'') (5 U.S.C. 601 et seq.)
requires agencies either to provide an initial regulatory flexibility
analysis with a proposed rule or to certify that the proposed rule will
not have a significant economic impact on a substantial number of small
entities. In accordance with section 3(a) of the RFA, the Board has
reviewed the proposed regulation. In this case, the proposed rule would
apply to all depository institutions that choose to use the Reserve
Bank's FedNow Service, but the Board does not believe it will have a
significant economic impact on a substantial number of small entities.
Nevertheless, this Initial Regulatory Flexibility Analysis has been
prepared in accordance with 5 U.S.C. 603 in order for the Board to
solicit comment on the effect of the proposal on small entities. The
Board will, if necessary, conduct a final regulatory flexibility
analysis after consideration of comments received during the public
comment period.
1. Statement of the Need for, Objectives of, and Legal Basis for, the
Proposed Rule
While the Reserve Banks can prescribe by agreement terms and
conditions in providing the FedNow Service, the Board believes it is
appropriate to bring the FedNow Service within the coverage of
Regulation J. As discussed in previous sections, the main objective of
the proposed amendments to Regulation J is to establish a new subpart C
to govern funds transfers made through the FedNow Service.
2. Small Entities Affected by the Proposed Rule
The proposed amendments would apply to all depository institutions
that choose to participate in the FedNow Service regardless of their
size. Pursuant to regulations issued by the Small Business
Administration (13 CFR 121.201), a ``small banking organization''
includes a depository institution with $550 million or less in total
assets. Based on call report data, there are approximately 9,460
depository institutions that have total domestic assets of $550 million
or less and thus are considered small entities for purposes of the RFA.
3. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
Other than noted here, there are no new projected reporting,
recordkeeping, or other compliance requirements and no substantive
changes to existing reporting, recordkeeping or other compliance
requirements in the proposed amendments to Regulation J. Depository
institutions that voluntarily choose to use the FedNow Service will
have to comply with the applicable provisions of this proposed rule,
which include the requirement on the availability of funds.
4. Identification of Duplicative, Overlapping, or Conflicting Federal
Rules
The Board has not identified any likely duplication and/or
potential conflict between the proposed regulatory amendments and any
other Federal rule. While some overlap exists between the proposed
amendments and EFAA (implemented in Regulation CC), as discussed above,
the regulatory overlap does not create conflicting federal rules.
Regulation CC's availability requirements apply to all electronic
payments and establish the outer bound of when those funds must be made
available. The proposed requirements in Regulation J regarding
availability establish a shorter time period for when funds must be
made available than is required under Regulation CC and applies only to
the subset of electronic payments that use the FedNow Service as a term
of the service.
5. Significant Alternatives to the Proposed Rule
As discussed above, the Board has not identified any new or
substantial change to regulatory burden associated with the proposed
amendments to Regulation J, and the Board has not identified any
significant alternatives that would otherwise reduce the regulatory
burden on small entities.
C. Solicitation of Comments on Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies
to use plain language in all proposed and final rules published after
January 1, 2000. The Board has sought to present the proposed rule in a
simple and straightforward manner, and invites comment on the use of
plain language and whether any part of the proposed rule could be more
clearly stated.
List of Subjects in 12 CFR Part 210
Banks, banking, Federal Reserve System.
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR part 210 as follows:
PART 210--COLLECTION OF CHECKS AND OTHER ITEMS BY FEDERAL RESERVE
BANKS AND FUNDS TRANSFERS THROUGH THE FEDWIRE FUNDS SERVICE AND THE
FEDNOW SERVICE (REGULATION J)
0
1. The authority citation for part 210 continues to read as follows:
Authority: 12 U.S.C. 248(i), (j), and 248-1, 342, 360, 464,
4001-4010, and 5001-5018.
0
2. Revise the heading to part 210 as shown above.
0
3. Revise Sec. 210.2 to read as follows:
[[Page 31383]]
Sec. 210.2 Definitions.
As used in this subpart A, unless the context otherwise requires:
Account means an account on the books of a Federal Reserve Bank. A
subaccount is an informational record of a subset of transactions that
affect an account and is not a separate account.
Actually and finally collected funds means cash or any other form
of payment that is, or has become, final and irrevocable.
Administrative Reserve Bank with respect to an entity means the
Reserve Bank in whose District the entity is located, as determined
under the procedure described in Sec. 204.3(g) of this chapter
(Regulation D), even if the entity is not otherwise subject to that
section.
Bank means any person engaged in the business of banking. A branch
or separate office of a bank is a separate bank to the extent provided
in the Uniform Commercial Code.
Bank draft means a check drawn by one bank on another bank.
Banking day means the part of a day on which a bank is open to the
public for carrying on substantially all of its banking functions.
Cash item means--
(1) A check other than one classified as a noncash item under this
section; or
(2) Any other item payable on demand and collectible at par that
the Reserve Bank that receives the item is willing to accept as a cash
item. Cash item does not include a returned check.
Check means a check or an electronic check, as those terms are
defined in Sec. 229.2 of this chapter (Regulation CC).
Clock hour and clock half-hour. (1) Clock hour means a time that is
on the hour, such as 1:00, 2:00, etc.
(2) Clock half-hour means a time that is on the half-hour, such as
1:30, 2:30, etc.
Fedwire Funds Service and Fedwire have the same meaning as that set
forth in Sec. 210.26.
Item. (1) Means--
(i) An instrument or a promise or order to pay money, whether
negotiable or not, that is--
(A) Payable in a Federal Reserve District \1\ (District);
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\1\ For purposes of this subpart, the Virgin Islands and Puerto
Rico are deemed to be in the Second District, and Guam, American
Samoa, and the Northern Mariana Islands in the Twelfth District.
---------------------------------------------------------------------------
(B) Sent by a sender to a Reserve Bank for handling under this
subpart; and
(C) Collectible in funds acceptable to the Reserve Bank of the
District in which the instrument is payable; or
(ii) A check.
(2) Unless otherwise indicated, item includes both a cash and a
noncash item, and includes a returned check sent by a paying or
returning bank. Item does not include a check that cannot be collected
at par, or a payment order as defined in Sec. 210.26(i) and handled
under subpart B of this part. The term also does not include an
electronically-created item as defined in Sec. 229.2 of this chapter
(Regulation CC).
Nonbank payor means a payor of an item, other than a bank.
Noncash item means an item that a receiving Reserve Bank classifies
in its operating circulars as requiring special handling. The term also
means an item normally received as a cash item if a Reserve Bank
decides that special conditions require that it handle the item as a
noncash item.
Paying bank means--
(1) The bank by which an item is payable unless the item is payable
or collectible at or through another bank and is sent to the other bank
for payment or collection;
(2) The bank at or through which an item is payable or collectible
and to which it sent for payment or collection; or
(3) The bank whose routing number appears on a check in the MICR
line or in fractional form (or in the MICR-line information that
accompanies an electronic item) and to which the check is sent for
payment or collection.
Returned check means a cash item returned by a paying bank,
including an electronic returned check as defined in Sec. 229.2 of
this chapter (Regulation CC) and a notice of nonpayment in lieu of a
returned check, whether or not a Reserve Bank handled the check for
collection.
Sender means any of the following entities that sends an item to a
Reserve Bank for forward collection--
(1) A depository institution, as defined in section 19(b) of the
Federal Reserve Act (12 U.S.C. 461(b));
(2) A member bank, as defined in section 1 of the Federal Reserve
Act (12 U.S.C. 221);
(3) A clearing institution, defined as--
(i) An institution that is not a depository institution but that
maintains with a Reserve Bank the balance referred to in the first
paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 342); or
(ii) An Edge corporation or agreement corporation that maintains an
account with a Reserve Bank in conformity with Part 211 of this chapter
(Regulation K);
(4) Another Reserve Bank;
(5) An international organization for which a Reserve Bank is
empowered to act as depositary or fiscal agent and maintains an
account;
(6) A foreign correspondent, defined as any of the following
entities for which a Reserve Bank maintains an account: A foreign bank
or banker, a foreign state as defined in section 25(b) of the Federal
Reserve Act (12 U.S.C. 632), or a foreign correspondent or agency
referred to in section 14(e) of that act (12 U.S.C. 358); or
(7) A branch or agency of a foreign bank maintaining reserves under
section 7 of the International Banking Act of 1978 (12 U.S.C. 347d,
3105).
State means a State of the United States, the District of Columbia,
Puerto Rico, or a territory, possession, or dependency of the United
States.
Uniform Commercial Code and U.C.C. mean the Uniform Commercial Code
as adopted in a state
Terms not defined in this section. Unless the context otherwise
requires--
(1) The terms not defined herein have the meanings set forth in
Sec. 229.2 of this chapter applicable to subpart C or D of part 229 of
this chapter (Regulation CC), as appropriate; and
(2) The terms not defined herein or in Sec. 229.2 of this chapter
have the meanings set forth in the Uniform Commercial Code.
0
4. Amend subpart B of part 210 by:
0
a. Revising the heading to subpart B of part 210 to read as follows:
Subpart B--Funds Transfers Through the Fedwire Funds Service
0
b. Removing the words ``Appendix B of this subpart'' and ``Appendix B
to this subpart'' and replace with the words ``Appendix A of this part
210'' wherever they appear.
0
5. In Sec. 210.25, revise paragraphs (b)(2) and (c) to read as
follows:
Sec. 210.25 Authority, purpose, and scope.
* * * * *
(b) * * *
(2) Except as otherwise provided in paragraphs (b)(3) and (4) of
this section, this subpart, including Article 4A as set forth in
appendix A of this part and operating circulars of the Federal Reserve
Banks issued in accordance with paragraph (c) of this section, governs
the rights and obligations of the following parties with respect to the
Fedwire Funds Service:
(i) Federal Reserve Banks that send or receive payment orders;
(ii) Senders that send payment orders directly to a Federal Reserve
Bank;
(iii) Receiving banks that receive payment orders directly from a
Federal Reserve Bank;
(iv) Beneficiaries that receive payment for payment orders by means
of credit to an account maintained or used at a Federal Reserve Bank;
and
(v) Other parties to a funds transfer any part of which is carried
out through
[[Page 31384]]
the Fedwire Funds Service to the same extent as if this subpart were
considered a funds-transfer system rule under Article 4A.
* * * * *
(c) Operating Circulars. Each Federal Reserve Bank shall issue an
Operating Circular consistent with this subpart that governs the
details of its funds-transfer operations in connection with the Fedwire
Funds Service and other matters it deems appropriate. Among other
things, the Operating Circular may set cut-off times and funds-transfer
business days; address security procedures offered by the Federal
Reserve Banks to verify the authenticity of a payment order; specify
format and media requirements for payment orders; specify the time and
method of receipt, execution, and acceptance of a payment order and
settlement of a Federal Reserve Bank's payment obligation for purposes
of Article 4A; specify service terms governing ancillary features of
the Fedwire Funds Service; provide for the acceptance of documents in
electronic form to the extent any provision in Article 4A requires an
agreement or other document to be in writing; identify messages that
are not payment orders; and impose charges for funds-transfer services.
* * * * *
0
6. Revise Sec. 210.26 to read as follows:
Sec. 210.26 Definitions.
As used in this subpart, the following definitions apply:
Article 4A means Article 4A of the Uniform Commercial Code as set
forth in appendix A of this part, which is incorporated into this
subpart in accordance with Sec. 210.25(b).
Automated clearing house transfer means any transfer designated as
an automated clearing house transfer in an operating circular issued by
the Federal Reserve Banks.
Beneficiary has the same meaning as in Article 4A except that the
term is limited to a beneficiary in a funds transfer any portion of
which is sent through the Fedwire Funds Service.
Beneficiary's bank has the same meaning as in Article 4A, except
that:
(1) The term is limited to a beneficiary's bank in a funds transfer
any portion of which is sent through the Fedwire Funds Service;
(2) A Federal Reserve Bank need not be identified in the payment
order in order to be the beneficiary's bank; and
(3) The term includes a Federal Reserve Bank when that Federal
Reserve Bank is the beneficiary of a payment order.
Fedwire Funds Service means the funds-transfer system owned and
operated by the Federal Reserve Banks that is used primarily for the
transmission and settlement of payment orders governed by this subpart.
The Fedwire Funds Service does not include the FedNow Service or the
system for making automated clearing house transfers.
Interdistrict transfer means a funds transfer involving entries to
accounts maintained at two Federal Reserve Banks.
Intradistrict transfer means a funds transfer involving entries to
accounts maintained at one Federal Reserve Bank.
Off-line bank means a bank that sends payment orders to and
receives payment orders from a Federal Reserve Bank by telephone orally
or by other means other than electronic data transmission.
Payment order has the same meaning as in Article 4A except that the
term includes only instructions sent or received through the Fedwire
Funds Service and does not include automated clearing house transfers
or any communication designated in an operating circular issued by a
Federal Reserve Bank under this subpart as not being a payment order.
Receiving bank has the same meaning as in Article 4A except that
the term is limited to a receiving bank in a funds transfer any portion
of which is sent through the Fedwire Funds Service.
Sender has the same meaning as in Article 4A except that the term
is limited to a sender in a funds transfer any portion of which is sent
through the Fedwire Funds Service.
Sender's account, receiving bank's account, and beneficiary's
account mean the reserve, clearing, or other funds deposit account at a
Federal Reserve Bank maintained or used by the sender, receiving bank,
or beneficiary, respectively.
Sender's Federal Reserve Bank and receiving bank's Federal Reserve
Bank mean the Federal Reserve Bank at which the sender or receiving
bank, respectively, maintains or uses an account.
0
7. In Sec. 210.28, revise paragraphs (b)(1) through (3) to read as
follows:
Sec. 210.28 Agreement of sender.
* * * * *
(b) Overdrafts. (1) A sender does not have the right to an
overdraft in the sender's account. In the event an overdraft is
created, the overdraft shall be due and payable immediately, without
the need for a demand by the Federal Reserve Bank, at the earliest of
the following times:
(i) At the end of the Fedwire Funds Service funds-transfer business
day;
(ii) At the time the Federal Reserve Bank, in its sole discretion,
deems itself insecure and gives notice thereof to the sender; or
(iii) At the time the sender suspends payments or is closed.
(2) The sender shall have in its account, at the time the overdraft
is due and payable, a balance of actually and finally collected funds
sufficient to cover the aggregate amount of all its obligations to the
Federal Reserve Bank, whether the obligations result from the execution
of a payment order or otherwise.
(3) To secure any overdraft, as well as any other obligation due or
to become due to its Federal Reserve Bank, each sender, by sending a
payment order to a Federal Reserve Bank that is accepted by the Federal
Reserve Bank, grants to the Federal Reserve Bank a security interest in
all of the sender's assets in the possession or control of, or held for
the account of, the Federal Reserve Bank. The security interest
attaches when an overdraft, or any other obligation to the Federal
Reserve Bank, becomes due and payable.
* * * * *
0
8. In Sec. 210.30, revise paragraphs (b) and (c) to read as follows:
Sec. 210.30 Payment orders.
* * * * *
(b) Selection of an intermediary bank. For an interdistrict
transfer through the Fedwire Funds Service, a Federal Reserve Bank is
authorized and directed to execute a payment order through another
Federal Reserve Bank. A sender shall not send a payment order to a
Federal Reserve Bank that requires the Federal Reserve Bank to send a
payment order to an intermediary bank (other than a Federal Reserve
Bank) unless that intermediary bank is designated in the sender's
payment order. A sender shall not send to a Federal Reserve Bank a
payment order through the Fedwire Funds Service that instructs use by a
Federal Reserve Bank of a funds-transfer system or means of
transmission other than the Fedwire Funds Service unless the Federal
Reserve Bank agrees with the sender in writing to follow such
instructions.
(c) Execution date and payment date. A sender shall not send a
payment order through the Fedwire Funds Service that instructs a
Federal Reserve Bank to execute the payment order or to pay the
beneficiary on a funds-transfer business day that is later than the
Fedwire Funds Service funds-transfer business day on which the order is
received by the Federal Reserve Bank, unless the Federal Reserve Bank
agrees with the
[[Page 31385]]
sender in writing to follow such instructions.
0
9. In Sec. 210.32, revise the section heading and paragraph (b) to
read as follows:
Sec. 210.32 Federal Reserve Bank liability; payment of compensation.
* * * * *
(b) Payment of compensation. (1) A Federal Reserve Bank shall
satisfy its obligation, or that of another Federal Reserve Bank, to pay
compensation in the form of interest under Article 4A by paying such
compensation in the form of interest to a sender, receiving bank,
beneficiary, or another party to the funds transfer that is entitled to
such payment in an amount that is calculated in accordance with section
4A-506 of Article 4A.
(2) If the sender or receiving bank that is the recipient of the
payment of compensation is not the party entitled to compensation under
Article 4A, the sender or receiving bank shall pass through the benefit
of the compensation by making an interest payment, as of the day the
compensation was paid by the Federal Reserve Bank, to the party
entitled to compensation. The interest payment that is made to the
party entitled to compensation shall not be less than the value of the
compensation that was paid by the Federal Reserve Bank to the sender or
receiving bank. The party entitled to compensation may agree to accept
compensation in a form other than a direct interest payment, provided
that such an alternative form of compensation is not less than the
value of the interest payment that otherwise would be made.
* * * * *
0
10. In Appendix A of subpart B of part 210:
0
a. Under ``Section 210.25--Authority, Purpose, and Scope,'' revise
paragraphs (a), (b)(1) through (6), and (c);
0
b. Revise ``Section 210.26--Definitions;''
0
c. Under ``Section 210.28--Agreement of Sender,'' revise paragraphs
(a), (b)(1) and (2), and (c)(2);
0
d. Under ``Section 210.30--Payment Orders,'' revise paragraphs (b)(2)
and (c); and
0
e. Under ``Section 210.32--Federal Reserve Bank Liability; Payment of
Compensation,'' revise the heading and paragraphs (a)(2), (b)(1)
through (3), and (c).
The revisions read as follows:
Appendix A of Subpart B of Part 210--Commentary
* * * * *
Section 210.25--Authority, Purpose, and Scope
(a) Authority and purpose. Section 210.25(a) states that the
purpose of subpart B of this part is to provide rules to govern
funds transfers through the Fedwire Funds Service and recites the
Board's rulemaking authority for this subpart. Subpart B of this
part is federal law and is not a ``funds-transfer system rule'' as
defined in section 4A-501(b) of Article 4A, Funds Transfers, of the
Uniform Commercial Code (UCC), as set forth in appendix A of this
part. Certain provisions of Article 4A may not be varied by a funds-
transfer system rule, but under section 4A-107, regulations of the
Board and operating circulars of the Federal Reserve Banks supersede
inconsistent provisions of Article 4A to the extent of the
inconsistency. In addition, regulations of the Board may preempt
inconsistent provisions of state law. Accordingly, subpart B of this
part supersedes or preempts inconsistent provisions of state law. It
does not affect state law governing funds transfers that does not
conflict with the provisions of subpart B of this part, such as
Article 4A as enacted in any state, as such state law may apply to
parties to funds transfers through the Fedwire Funds Service whose
rights and obligations are not governed by subpart B of this part.
(b) Scope. (1) Subpart B of this part incorporates the
provisions of Article 4A set forth in appendix A of this part. The
provisions set forth expressly in the sections of subpart B of this
part supersede or preempt any inconsistent provisions of Article 4A
as set forth in appendix A of this part or as enacted in any state.
The official comments to Article 4A are not incorporated in subpart
B of this part or this commentary to subpart B of this part, but the
official comments may be useful in interpreting Article 4A as set
forth in appendix A of this part. Because section 4A-105 refers to
other provisions of the Uniform Commercial Code (e.g., definitions
in article 1 of the UCC), these other provisions of the UCC, as
approved by the National Conference of Commissioners on Uniform
State Laws, which is now also known as the Uniform Law Commission,
and the American Law Institute, from time to time, are also
incorporated into subpart B of this part. Subpart B of this part
applies to any party to a funds transfer over the Fedwire Funds
Service that is in privity with a Federal Reserve Bank. These
parties include a sender (bank or nonbank) that sends a payment
order directly to a Federal Reserve Bank, a receiving bank that
receives a payment order directly from a Federal Reserve Bank, and a
beneficiary that receives credit to an account that it uses or
maintains at a Federal Reserve Bank as payment for a payment order
accepted by a Federal Reserve Bank. Other parties to a funds
transfer over the Fedwire Funds Service are covered by subpart B of
this part to the same extent subpart B would apply to them if
subpart B were a ``funds-transfer system rule'' under Article 4A
that selected subpart B of this part as the governing law.
(2) The scope of the applicability of a funds-transfer system
rule under Article 4A is specified in section 4A-501(b), and the
scope of the choice of law provision is specified in section 4A-
507(c). Under section 4A-507(c), a choice of law provision is
binding on the participants in a funds-transfer system and certain
other parties having notice that the funds-transfer system might be
used for the funds transfer and of the choice of law provision. The
Uniform Commercial Code provides that a person has notice of a fact
when the person has actual knowledge of it, receives a notice or
notification of it, or has reason to know that it exists from all
the facts and circumstances known to the person at the time in
question. (See UCC section 1-202.) However, under sections 4A-507(b)
and 4A-507(d), a choice of law by agreement of the parties takes
precedence over a choice of law made by funds-transfer system rule.
(3) If originators, receiving banks, and beneficiaries that are
not in privity with a Federal Reserve Bank have the notice
contemplated by section 4A-507(c) or if those parties agree to be
bound by subpart B of this part, subpart B of this part generally
would apply to payment orders between those remote parties,
including participants in other funds-transfer systems. For example,
a payment order may be sent from an originator's bank through a
funds-transfer system other than the Fedwire Funds Service to a
receiving bank which, in turn, executes that payment order by
sending a payment order through the Fedwire Funds Service.
Similarly, a Federal Reserve Bank may send a payment order through
the Fedwire Funds Service to a receiving bank that sends it through
a funds-transfer system other than the Fedwire Funds Service to the
beneficiary's bank. In the first example, if the originator's bank
has notice that the Fedwire Funds Service may be used to effect part
of the funds transfer, the sending of the payment order through the
other funds-transfer system to the receiving bank will be governed
by subpart B of this part unless the parties to the payment order
have agreed otherwise. In the second example, if the beneficiary's
bank has notice that the Fedwire Funds Service may be used to effect
part of the funds transfer, the sending of the payment order to the
beneficiary's bank through the other funds-transfer system will be
governed by subpart B of this part unless the parties have agreed
otherwise. In both cases, the other funds-transfer system's rules
would also apply to, at a minimum, the portion of these funds
transfers being made through that funds transfer system. Because
subpart B of this part is federal law, subpart B of this part will
take precedence over any funds-transfer system rule applicable to
the remote sender or receiving bank or to a Federal Reserve Bank to
the extent of any inconsistency. If remote parties to a funds
transfer, a portion of which is sent through the Fedwire Funds
Service, have expressly selected by agreement, in accordance with
section 4A-507(b), a law other than subpart B of this part, subpart
B of this part would not take precedence over the choice of law made
by the agreement even though the remote parties had notice that the
Fedwire Funds Service might be used and of the governing law. (See
section 4A-507(d).) In
[[Page 31386]]
addition, subpart B of this part would not apply to a funds transfer
sent through another funds-transfer system where no Federal Reserve
Bank handles the funds transfer, even though settlement for the
funds transfer is made by means of a separate net settlement or
funds transfer through the Fedwire Funds Service.
(4) Under section 4A-108, Article 4A does not apply to a funds
transfer any part of which is governed by the Electronic Fund
Transfer Act (EFTA) (15 U.S.C. 1693 et seq.). In general, Fedwire
funds transfers to or from consumer accounts are exempt from the
EFTA and Regulation E (12 CFR part 1005). A funds transfer from a
consumer originator or a funds transfer to a consumer beneficiary
could be carried out in part through the Fedwire Funds Service and
in part through an automated clearinghouse or other means that is
subject to the EFTA or Regulation E. In these cases, subpart B would
not govern the portion of the funds transfer that is governed by the
EFTA or Regulation E. (See the commentary to Sec. 210.26 in this
appendix, ``Payment Order''.)
(5) Section 919 of the EFTA, however, governs ``remittance
transfers,'' which may include funds transfers over the Fedwire
Funds Service. Section 919 of the EFTA sets out the obligations of
remittance transfer providers with respect to consumer senders of
remittance transfers. Section 919 of the EFTA generally does not
affect the rights and obligations of financial institutions involved
in a remittance transfer. To the extent that a Fedwire funds
transfer is a ``remittance transfer'' governed by section 919 of the
EFTA, it continues to be governed by subpart B of this part, except
that, in the event of an inconsistency between the provisions of
subpart B of this part and section 919 of the EFTA, section 919 of
the EFTA shall prevail. For example, a consumer may initiate a
remittance transfer governed by EFTA section 919 from the consumer's
account at a depository institution, and the depository institution
may initiate that transfer by sending a payment order to a Federal
Reserve Bank through the Fedwire Funds Service. If the consumer
subsequently exercised the right to cancel the remittance transfer
and obtain a refund under the terms of section 919 of the EFTA, the
depository institution would be required to comply with section 919
even if the institution does not have a right to reverse the payment
order sent to the Federal Reserve Bank under subpart B of this part.
(6) Finally, section 4A-404(a) provides that a beneficiary's
bank is obliged to pay the amount of a payment order to the
beneficiary on the payment date unless acceptance of the payment
order occurs on the payment date after the close of the funds-
transfer business day of the bank. The Expedited Funds Availability
Act provides that funds received by a bank by wire transfer shall be
available for withdrawal not later than the business day after the
business day on which such funds are received (12 U.S.C. 4002(a)).
That act also preempts any provision of state law that was not
effective on September 1, 1989, that is inconsistent with that act
or its implementing Regulation CC (12 CFR part 229). Accordingly,
the Expedited Funds Availability Act and Regulation CC may preempt
section 4A-404(a) as enacted in any state. In order to ensure that
section 4A-404(a), or other provisions of Article 4A, as
incorporated in subpart B of this part, do not take precedence over
provisions of the Expedited Funds Availability Act, this section
210.25(b)(4) provides that where subpart B of this part establishes
rights or obligations that are also governed by the Expedited Funds
Availability Act or Regulation CC, the Expedited Funds Availability
Act or Regulation CC provision shall apply and subpart B of this
part shall not apply.
(c) Operating Circulars. The Federal Reserve Banks issue
Operating Circulars consistent with this subpart that contain
additional provisions applicable to payment orders and other
messages sent through the Fedwire Funds Service. Under section 4A-
107, these Operating Circulars supersede inconsistent provisions of
Article 4A, both as set forth in appendix A of this part and as
enacted in any state. These Operating Circulars are not funds-
transfer system rules, but, by their terms, they are binding on all
parties covered by this subpart.
* * * * *
Section 210.26--Definitions
Article 4A defines many terms (e.g., beneficiary, intermediary
bank, receiving bank, security procedure) used in subpart B of this
part. These terms are defined or listed in sections 4A-103 through
4A-105. These terms, such as the term bank (defined in section 4A-
105(d)(2)), may differ from comparable terms in subpart A and
subpart C of this part. As subpart B of this part incorporates
consistent provisions of Article 4A, it incorporates these
definitions unless these terms are expressly defined otherwise in
subpart B of this part. Subpart B modifies the definitions of five
Article 4A terms, beneficiary, beneficiary's bank, payment order,
receiving bank, and sender. Subpart B also defines terms not defined
in Article 4A.
Article 4A. Article 4A means the version of that article of the
Uniform Commercial Code set forth in appendix A of this part. It
does not refer to the law of any particular state unless the context
indicates otherwise. Subject to the express provisions of this
subpart, this version of Article 4A is incorporated into this
subpart and made federal law for transactions covered by subpart B
of this part. (See Sec. 210.25(b)(1) and accompanying commentary.)
Because section 4A-105 refers to other provisions of the Uniform
Commercial Code (e.g., definitions in article 1 of the UCC), these
other provisions of the UCC, as approved by the National Conference
of Commissioners on Uniform State Laws, which is now also known as
the Uniform Law Commission, and the American Law Institute, from
time to time, are also incorporated into subpart B of this part.
Beneficiary, beneficiary's bank, receiving bank, and sender. The
definitions of ``beneficiary,'' ``beneficiary's bank,'' ``receiving
bank,'' and ``sender'' in subpart B of this part differ from the
definitions in sections 4A-103(a)(2) through (4). The subpart B
definitions clarify that, for the purposes of subpart B of this
part, these terms are limited to parties in a funds transfer that is
sent through the Fedwire Funds Service. For example, the parties to
a funds transfer that is sent through the FedNow Service would be
governed by subpart C of this part, and would not be a
``beneficiary,'' ``beneficiary's bank,'' ``receiving bank,'' or
``sender'' governed by subpart B of this part. The subpart B
definition of ``beneficiary's bank'' further clarifies that where a
Federal Reserve Bank functions as the beneficiary's bank, it need
not be identified in the payment order as the beneficiary's bank and
that a Federal Reserve Bank that receives a payment order as
beneficiary is also the beneficiary's bank with respect to that
payment order.
Fedwire Funds Service. This term refers to the funds-transfer
system owned and operated by the Federal Reserve Banks that is
governed by this subpart. The term does not refer to any particular
computer, telecommunications facility, or funds transfer, but rather
to the system as a whole, which may include transfers by telephone
or by written instrument in particular circumstances. The term does
not include the FedNow Service or the system used for automated
clearing house transfers.
Off-line bank. Most Fedwire payment orders are sent
electronically from a sender to a Federal Reserve Bank or from a
Federal Reserve Bank to a receiving bank. Banks that send payment
orders to Federal Reserve Banks electronically are often referred to
as on-line banks. Some Fedwire Funds Service participants, however,
send payment orders to a Federal Reserve Bank or receive payment
orders from a Federal Reserve Bank orally by telephone or, in
unusual circumstances, in writing. A bank that does not use either a
terminal or a computer that links it electronically to a terminal or
computer at its Federal Reserve Bank to send payment orders through
the Fedwire Funds Service is an off-line bank.
Payment Order. (1) The definition of ``payment order'' in
subpart B of this part differs from the section 4A-103(a)(1)
definition. The subpart B definition clarifies that, for the
purposes of subpart B of this part, the term includes only
instructions transmitted through the Fedwire Funds Service. For
example, instructions transmitted through the FedNow Service would
be governed by subpart C of this part, and not subpart B of this
part. Additionally, the subpart B definition provides that certain
messages that are transmitted through the Fedwire Funds Service are
not payment orders. Federal Reserve Banks and banks participating in
the Fedwire Funds Service send various types of messages relating to
payment orders or to other matters, through the Fedwire Funds
Service, that are not intended to be payment orders. In some cases,
messages sent through the Fedwire Funds Service, such as certain
requests for credit transfer, may be payment orders under Article
4A, but are not treated as payment orders under subpart B of this
part because they are not an instruction to a Federal Reserve Bank
to pay or cause another bank to pay money. Under the subpart B
definition, these messages are not ``payment
[[Page 31387]]
orders'' governed by subpart B of this part. The operating circulars
of the Federal Reserve Banks may specify those messages that may be
transmitted through the Fedwire Funds Service but that are not
payment orders.
(2) Subpart B of this part, including its incorporation of
Article 4A, governs a payment order even though the originator's or
beneficiary's account may be a consumer account established
primarily for personal, family, or household purposes. Under section
4A-108, Article 4A does not apply to a funds transfer any part of
which is governed by the Electronic Fund Transfer Act. That act and
Regulation E (12 CFR part 1005) implementing it do not apply to
funds transfers through the Fedwire Funds Service (see 15 U.S.C.
1693a(7)(B) and 12 CFR 1005.3(c)(3)), except that section 919 of the
Electronic Fund Transfer Act may govern a Fedwire funds transfer
that is a ``remittance transfer.'' Such remittance transfers that
are Fedwire funds transfers continue to be governed by subpart B of
this part. Thus, subpart B of this part applies to all funds
transfers through the Fedwire Funds Service even though some such
transfers involve originators or beneficiaries who are consumers.
(See also Sec. 210.25(b) and accompanying commentary.)
* * * * *
Section 210.28--Agreement of Sender
(a) Payment of sender's obligation to a Federal Reserve Bank.
When a sender sends a payment order to a Federal Reserve Bank and
the Federal Reserve Bank accepts the payment order by issuing a
conforming order executing the sender's payment order, under section
4A-402 the sender is indebted to the Federal Reserve Bank for the
amount of the payment order. Section 4A-403 specifies the various
methods by which a sender may settle the obligation under section
4A-402. With respect to a payment order sent through the Fedwire
Funds Service, the obligation of a sender (other than a Federal
Reserve Bank) is settled by a debit to the account of the sender at
a Federal Reserve Bank. Section 210.28(a) provides that a sender,
other than a Federal Reserve Bank, that maintains or uses an account
at a Federal Reserve Bank authorizes the Federal Reserve Bank to
debit that account so that the Federal Reserve Bank can obtain
payment for the payment order.
(b) Overdrafts. (1) In some cases, debits to a sender's account
will create an overdraft in the sender's account. The Board and the
Federal Reserve Banks have established policies concerning when a
Federal Reserve Bank will permit a bank to incur an overdraft in its
account at a Federal Reserve Bank. These policies do not give a bank
or other sender a right to an overdraft in its account. Subpart B
clarifies that a sender does not have a right to such an overdraft.
If an overdraft arises, it becomes immediately due and payable at
the earliest of the following times: The end of the Fedwire Funds
Service funds-transfer business day; the time the Federal Reserve
Bank, in its sole discretion, deems itself insecure and gives notice
to the sender; or the time that the sender suspends payments or is
closed by governmental action, such as the appointment of a
receiver. In some cases, a Federal Reserve Bank extends its Fedwire
Funds Service operations beyond the standard cut-off time for that
funds-transfer business day. For the purposes of this section,
unless otherwise specified by the Federal Reserve Bank making such
an extension, an overdraft becomes due and payable at the end of the
extended operating hours. An overdraft becomes due and payable prior
to a Federal Reserve Bank's cut-off time if the Federal Reserve Bank
deems itself insecure and gives notice to the sender. A Federal
Reserve Bank that deems itself insecure may give such notice in
accordance with the provisions on notice in section 1-202(d) of the
UCC, in accordance with any other applicable law or agreement, or by
any other reasonable means. An overdraft also becomes due and
payable at the time that a bank is closed or suspends payments. For
example, an overdraft becomes due and payable if a receiver is
appointed for the bank or the bank is prevented from making payments
by governmental order. The Federal Reserve Bank need not make demand
on the sender for the overdraft to become due and payable.
(2) A sender must cover any overdraft and any other obligation
of the sender to the Federal Reserve Bank by the time the overdraft
becomes due and payable. By sending a payment order to a Federal
Reserve Bank, the sender grants a security interest to the Federal
Reserve Bank in all of the assets of the sender possessed or
controlled by, or held for the account of, the Federal Reserve Bank
in order to secure all obligations due or to become due to the
Federal Reserve Bank. The security interest attaches when the
overdraft, or other obligation of the sender to the Federal Reserve
Bank, becomes due and payable. The security interest does not apply
to assets held by the sender as custodian or trustee for the
sender's customers or third parties. Once an overdraft is due and
payable, a Federal Reserve Bank may exercise its right of setoff,
liquidate collateral, or take other similar action to satisfy the
obligation the sender owes to the Federal Reserve Bank.
* * * * *
(c) * * *
(2) Section 4A-505 provides that, in order for a customer to
assert a claim objecting to a debit to its account by a receiving
bank, the customer must notify the receiving bank of its objection
within one year after the customer received notification reasonably
identifying the payment order. Subpart B of this part does not vary
this one-year claim preclusion period.
* * * * *
Section 210.30--Payment Orders
* * * * *
(b) * * *
(2) This section provides that in an interdistrict transfer, a
Federal Reserve Bank is authorized and directed to select another
Federal Reserve Bank as an intermediary bank. A sender may, however,
instruct a Federal Reserve Bank to use a particular intermediary
bank by designating that bank as the bank to be credited by that
Federal Reserve Bank (or the second Federal Reserve Bank in the case
of an interdistrict transfer) in its payment order, in which case
the Federal Reserve Bank will send the payment order to that bank if
that bank receives payment orders through the Fedwire Funds Service.
A sender may not instruct a Federal Reserve Bank to use its
discretion to select an intermediary bank other than a Federal
Reserve Bank or an intermediary bank designated by the sender. In
addition, a sender may not send a payment order through the Fedwire
Funds Service that instructs a Federal Reserve Bank to use a funds-
transfer system or means of transmission other than the Fedwire
Funds Service unless the sender and the Federal Reserve Bank agree
in writing to the use of that funds-transfer system or means of
transmission.
(c) Execution date and payment date. Generally, the Fedwire
Funds Service is a same-day value transfer system through which
funds may be transferred from the originator to the beneficiary on
the same funds-transfer business day. A sender may not send a
payment order to a Federal Reserve Bank that specifies an execution
date or payment date later than the day on which the payment order
is issued, unless the sender of the order and the Federal Reserve
Bank agree in writing to the arrangement.
* * * * *
Section 210.32--Federal Reserve Bank Liability; Payment of
Compensation
(a) * * *
(2) This section does not affect the ability of other parties to
a funds transfer to agree to be liable for consequential damages,
the liability of a Federal Reserve Bank under section 4A-404
(relating to obligation of beneficiary's bank to pay and give notice
to beneficiary), or the liability to parties governed by subpart B
of this part for claims not based on the handling of a payment order
under subpart B of this part.
(b) Payment of compensation. (1) Under article 4A, a Federal
Reserve Bank may be required to pay compensation in the form of
interest to another party in connection with its handling of a funds
transfer. For example, payment of compensation in the form of
interest is required in certain situations pursuant to sections 4A-
204 (relating to refund of payment and duty of customer to report
with respect to unauthorized payment order), 4A-209 (relating to
acceptance of payment order), 4A-210 (relating to rejection of
payment order), 4A-304 (relating to duty of sender to report
erroneously executed payment order), 4A-305 (relating to liability
for late or improper execution or failure to execute a payment
order), 4A-402 (relating to obligation of sender to pay receiving
bank), and 4A-404 (relating to obligation of beneficiary's bank to
pay and give notice to beneficiary).
(2) Section 210.32(b) requires Federal Reserve Banks to provide
compensation through payment in the form of interest. Under section
4A-506(a), the amount of such interest may be determined by
agreement between the sender and receiving bank or by funds-transfer
system rule. If there is no such agreement, under section 4A-506(b),
the amount of interest is based on the federal funds rate.
Similarly, compensation in the form of interest will be paid to
government
[[Page 31388]]
senders, receiving banks, or beneficiaries described in Sec.
210.25(d) if they are entitled to interest under subpart B of this
part. A Federal Reserve Bank may also, in its discretion, pay
compensation in the form of interest directly to a remote party to a
Fedwire funds transfer that is entitled to interest, rather than
providing compensation to its sender or receiving bank.
(3) If a sender or receiving bank that received a payment of
compensation is not the party entitled to compensation under Article
4A, the sender or receiving bank must pass the benefit of the
payment made to it to the party that is entitled to compensation.
The benefit may be passed on either in the form of a direct payment
of interest or in the form of a compensating balance if the party
entitled to interest agrees to accept the other form of
compensation. In the latter case, the value of the compensating
balance must be at least equivalent to the value of the interest
payment that otherwise would have been provided.
(c) Nonwaiver of right of recovery. Several sections of Article
4A allow a party to a funds transfer to make a claim pursuant to the
applicable law of mistake and restitution. Nothing in subpart B of
this part or any operating circular issued in accordance with
subpart B of this part waives any such claim by a Federal Reserve
Bank. A Federal Reserve Bank, however, may waive such a claim by
express written agreement in order to settle litigation or for other
purposes.
Appendix B to Subpart B of Part 210--Article 4A, Funds Transfers
[Removed]
0
11. Remove Appendix B of subpart B of part 210.
0
12. Add subpart C of part 210 to read as follows:
Subpart C--Funds Transfers Through the FedNow Service
Sec.
210.40 Authority, purpose, and scope.
210.41 Definitions.
210.42 Reliance on identifying number.
210.43 Agreement of sender.
210.44 Agreement of receiving bank.
210.45 Payment orders.
210.46 Payment by a Federal Reserve Bank to a receiving bank or
beneficiary.
210.47 Federal Reserve Bank liability; payment of compensation.
Appendix A of Subpart C of Part 210--Commentary
Subpart C--Funds Transfers Through the FedNow Service
Sec. 210.40 Authority, purpose, and scope.
(a) Authority and purpose. This subpart provides rules to govern
funds transfers through the FedNow Service, and has been issued
pursuant to the Federal Reserve Act--section 13 (12 U.S.C. 342),
paragraph (f) of section 19 (12 U.S.C. 464), paragraph 14 of section 16
(12 U.S.C. 248(o)), and paragraphs (i) and (j) of section 11 (12 U.S.C.
248(i) and (j))--and other laws and has the force and effect of federal
law. This subpart is not a funds-transfer system rule as defined in
Section 4A-501(b) of Article 4A.
(b) Scope. (1) This subpart incorporates the provisions of Article
4A set forth in appendix A of this part. In the event of an
inconsistency between the provisions of the sections of this subpart
and appendix A of this part, the provisions of the sections of this
subpart shall prevail.
(2) Except as otherwise provided in paragraphs (b)(3) and (4) of
this section, this subpart, including Article 4A as incorporated herein
and operating circulars of the Federal Reserve Banks issued in
accordance with paragraph (c) of this section, governs the rights and
obligations of the following parties with respect to the FedNow
Service:
(i) Federal Reserve Banks that send or receive payment orders;
(ii) Senders that send payment orders directly to a Federal Reserve
Bank;
(iii) Receiving banks that receive payment orders directly from a
Federal Reserve Bank;
(iv) Beneficiaries that receive payment for payment orders by means
of credit to the beneficiary's settlement account; and
(v) Other parties to a funds transfer any part of which is carried
out through the FedNow Service to the same extent as if this subpart
were considered a funds-transfer system rule under Article 4A.
(3) A Federal Reserve Bank that is not the sender's Federal Reserve
Bank, receiving bank's Federal Reserve Bank, or beneficiary's Federal
Reserve Bank is not a party to the funds transfer for purposes of this
subpart and Article 4A.
(4) This subpart governs a funds transfer that is sent through the
FedNow Service, even if a portion of the funds transfer is governed by
the Electronic Fund Transfer Act, but in the event of an inconsistency
between the provisions this subpart and the Electronic Fund Transfer
Act, the Electronic Fund Transfer Act shall prevail to the extent of
the inconsistency.
(c) Operating Circulars. Each Federal Reserve Bank shall issue an
Operating Circular consistent with this subpart that governs the
details of its funds-transfer operations in connection with the FedNow
Service and other matters it deems appropriate. Among other things, the
Operating Circular may: Set cut-off times and funds-transfer business
days; address security procedures offered by the Federal Reserve Banks
to verify the authenticity of a payment order; specify format and media
requirements for payment orders; specify the time and method of
receipt, execution, and acceptance of a payment order and settlement of
a Federal Reserve Bank's payment obligation for purposes of Article 4A;
prescribe time limits for the processing of payment orders; specify
service terms governing ancillary features of the FedNow Service;
provide for the acceptance of documents in electronic form to the
extent any provision in Article 4A requires an agreement or other
document to be in writing; identify messages that are not payment
orders; and impose charges for funds-transfer services.
(d) Government senders, receiving banks, and beneficiaries. Except
as otherwise expressly provided by the statutes of the United States,
the parties specified in paragraphs (b)(2)(ii) through (v) of this
section include a department, agency, instrumentality, independent
establishment, or office of the United States, or a wholly-owned or
controlled government corporation.
(e) Financial messaging standards. Financial messaging standards
(e.g., ISO 20022), including the financial messaging components,
elements, technical documentation, tags, and terminology used to
implement those standards, do not confer or connote legal status or
responsibilities. This subpart, including Article 4A as incorporated
herein, and the operating circulars of the Federal Reserve Banks issued
in accordance with paragraph (c) of this section govern the rights and
obligations of parties to funds transfers sent through the FedNow
Service as provided in paragraph (b) of this section. To the extent
there is any inconsistency between a financial messaging standard
adopted by the Federal Reserve Banks for the FedNow Service and this
subpart, this subpart shall prevail.
Sec. 210.41 Definitions.
As used in this subpart, the following definitions apply:
Article 4A means Article 4A of the Uniform Commercial Code as set
forth in appendix A of this part, which is incorporated into this
subpart in accordance with Sec. 210.40(b).
Beneficiary has the same meaning as in Article 4A, except that the
term is limited to a beneficiary in a funds transfer that is sent
through the FedNow Service.
Beneficiary's bank has the same meaning as in Article 4A, except
that:
(1) The term is limited to a beneficiary's bank in a funds transfer
that is sent through the FedNow Service;
(2) A Federal Reserve Bank need not be identified in the payment
order in order to be the beneficiary's bank; and
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(3) The term includes a Federal Reserve Bank when that Federal
Reserve Bank is the beneficiary of a payment order.
Federal Reserve Bank with respect to an entity means the Federal
Reserve Bank in whose District the entity is located, as determined
under the procedure described in Part 204 of this chapter (Regulation
D), even if the entity is not otherwise subject to that section, or, if
the entity maintains an account on the books of a different Federal
Reserve Bank, the Federal Reserve Bank at which the entity maintains an
account.
The FedNow Service means the funds-transfer system owned and
operated by the Federal Reserve Banks to support instant payments that
is used primarily for the transmission and settlement of payment orders
governed by this subpart. The FedNow Service does not include the
Fedwire Funds Service.
Interdistrict transfer means a funds transfer involving entries to
settlement accounts maintained at two Federal Reserve Banks.
Payment order has the same meaning as in Article 4A, except that
the term includes only instructions sent or received through the FedNow
Service, and does not include automated clearing house transfers or any
communication designated as not being a payment order in an Operating
Circular issued by a Federal Reserve Bank under this subpart.
Receiving bank has the same meaning as in Article 4A, except that
the term is limited to a receiving bank in a funds transfer that is
sent through the FedNow Service.
Sender has the same meaning as in Article 4A, except that the term
is limited to a sender in a funds transfer that is sent through the
FedNow Service.
Sender's settlement account, receiving bank's settlement account,
and beneficiary's settlement account mean an account on the books of a
Federal Reserve Bank maintained by the sender, receiving bank, or
beneficiary, respectively. The term also includes any account on a
Federal Reserve Bank's books used with respect to the FedNow Service by
the sender, receiving bank, or beneficiary, respectively, by agreement
with its Federal Reserve Bank, any other Federal Reserve Bank on whose
books the settlement account is maintained, and the account-holder.
Sec. 210.42 Reliance on identifying number.
(a) Reliance by a Federal Reserve Bank on number to identify a
beneficiary's bank. A Federal Reserve Bank that receives a payment
order from a sender containing a number that identifies the
beneficiary's bank may rely on the number, even if it identifies a bank
different from the bank identified by name in the payment order, if the
Federal Reserve Bank does not know of such an inconsistency in
identification. A Federal Reserve Bank has no duty to detect any such
inconsistency in identification.
(b) Reliance by a Federal Reserve Bank on number to identify
beneficiary. A Federal Reserve Bank, acting as a beneficiary's bank,
that receives a payment order from a sender containing a number that
identifies the beneficiary may rely on the number, even if it
identifies a person different from the person identified by name in the
payment order, if the Federal Reserve Bank does not know of such an
inconsistency in identification. A Federal Reserve Bank has no duty to
detect any such inconsistency in identification.
Sec. 210.43 Agreement of sender.
(a) Payment of sender's obligation to a Federal Reserve Bank. A
sender (other than a Federal Reserve Bank), by maintaining or using a
settlement account with a Federal Reserve Bank, authorizes the sender's
Federal Reserve Bank to obtain payment for the sender's payment orders
by debiting, or causing any other Federal Reserve Bank on whose books
the settlement account is maintained to debit, the amount of the
payment order from the settlement account. The sender remains
responsible for payment if the Federal Reserve Bank on whose books the
settlement account is maintained does not, for any reason, obtain
payment by debiting that account.
(b) Overdrafts. (1) A sender does not have the right to an
overdraft in its settlement account. In the event an overdraft is
created, the overdraft shall be due and payable immediately, without
the need for a demand by the Federal Reserve Bank, at the earliest of
the following times:
(i) At the end of the FedNow funds-transfer business day;
(ii) At the time the Federal Reserve Bank, in its sole discretion,
deems itself insecure and gives notice thereof to the sender; or
(iii) At the time the sender suspends payments or is closed.
(2) The sender shall have in its settlement account, at the time
the overdraft is due and payable, a balance of actually and finally
collected funds sufficient to cover the aggregate amount of all its
obligations to the Federal Reserve Bank, whether the obligations result
from the acceptance of a payment order or otherwise.
(3) To secure any overdraft, as well as any other obligation due or
to become due to its Federal Reserve Bank, a sender, by sending a
payment order to a Federal Reserve Bank that is accepted by the Federal
Reserve Bank, grants to the Federal Reserve Bank a security interest in
all of its assets in the possession or control of, or held for the
account of, the Federal Reserve Bank. The security interest attaches
when an overdraft, or any other obligation to the Federal Reserve Bank,
becomes due and payable.
(4) A Federal Reserve Bank may take any action authorized by law to
recover the amount of an overdraft that is due and payable, including,
but not limited to, the exercise of rights of set off, the realization
on any available collateral, and any other rights it may have as a
creditor under applicable law.
(5) If a sender, other than a government sender described in Sec.
210.40(d), incurs an overdraft in its settlement account as a result of
a debit to the account by a Federal Reserve Bank under paragraph (a) of
this section, the settlement account will be subject to any applicable
overdraft charges, regardless of whether the overdraft has become due
and payable. A Federal Reserve Bank may debit the settlement account
under paragraph (a) of this section immediately on acceptance of the
payment order.
(c) Review of payment orders. A sender, by sending a payment order
to a Federal Reserve Bank, agrees that for the purposes of sections 4A-
204(a) and 4A-304 of Article 4A, a reasonable time to notify a Federal
Reserve Bank of the relevant facts concerning an unauthorized or
erroneously executed payment order is within 60 calendar days after the
sender receives notice that the payment order was accepted or that the
sender's settlement account was debited with respect to the payment
order.
Sec. 210.44 Agreement of receiving bank.
(a) Payment. A receiving bank (other than a Federal Reserve Bank)
that receives a payment order from its Federal Reserve Bank authorizes
that Federal Reserve Bank to pay for the payment order by crediting, or
causing any other Federal Reserve Bank on whose books the settlement
account is maintained to credit, the amount of the payment order to the
settlement account.
(b) Funds availability. (1) A beneficiary's bank (other than a
Federal Reserve Bank) that accepts a payment order over the FedNow
Service is obliged to pay the amount of the order to the beneficiary of
the order
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immediately after its acceptance of the payment order, by crediting an
account of the beneficiary in accordance with section 4A-405(a) of
Article 4A. The rights and obligations with respect to the availability
of funds are also governed by the Expedited Funds Availability Act and
the Board's Regulation CC, Availability of Funds and Collection of
Checks.
(2) Nothing in paragraph (b)(1) of this section or any Operating
Circular issued hereunder shall create any rights that the beneficiary
or any party other than a Federal Reserve Bank may assert against the
beneficiary's bank, or affect any liability of the beneficiary's bank
to the beneficiary or any party other than a Federal Reserve Bank under
Article 4A or other law.
(3) In circumstances where the beneficiary's bank (other than a
Federal Reserve Bank) has reasonable cause to believe that the
beneficiary is not entitled or permitted to receive payment, the
beneficiary's bank may notify its Federal Reserve Bank that it requires
additional time to determine whether to accept the payment order. In
the event the beneficiary's bank gives such notice to its Federal
Reserve Bank, for purposes of this subpart and Article 4A the
beneficiary's bank does not accept the payment order upon its receipt
of payment in the amount of the payment order by a Federal Reserve
Bank.
Sec. 210.45 Payment orders.
(a) Rejection. A sender shall not send a payment order to a Federal
Reserve Bank unless authorized to do so by the Federal Reserve Bank. A
Federal Reserve Bank may reject, or impose conditions that must be
satisfied before it will accept, a payment order for any reason.
(b) Selection of an intermediary bank. For an interdistrict
transfer through the FedNow Service, a Federal Reserve Bank is
authorized and directed to execute a payment order through another
Federal Reserve Bank. A sender shall not send a payment order to a
Federal Reserve Bank that requires the Federal Reserve Bank to send a
payment order to an intermediary bank (other than a Federal Reserve
Bank). A sender shall not send to a Federal Reserve Bank a payment
order through the FedNow Service that instructs use by a Federal
Reserve Bank of a funds-transfer system or means of transmission other
than the FedNow Service, unless the Federal Reserve Bank agrees with
the sender in writing to follow such instructions.
(c) Execution Date and Payment Date. A sender shall not issue a
payment order through the FedNow Service that instructs a Federal
Reserve Bank to execute the payment order or to pay the beneficiary on
a FedNow funds-transfer business day that is later than the funds-
transfer business day on which the order is received by the Federal
Reserve Bank, unless the Federal Reserve Bank agrees with the sender in
writing to follow such instructions.
Sec. 210.46 Payment by a Federal Reserve Bank to a receiving bank or
beneficiary.
(a) Payment to a receiving bank. Payment of a Federal Reserve
Bank's obligation to pay a receiving bank (other than a Federal Reserve
Bank) occurs at the earlier of the time when the amount of the payment
order is credited to the receiving bank's settlement account or when
the payment order is sent to the receiving bank.
(b) Payment to a beneficiary. Payment by a Federal Reserve Bank to
a beneficiary of a payment order, where the Federal Reserve Bank is the
beneficiary's bank, occurs at the earlier of the time when the amount
of the payment order is credited to the beneficiary's settlement
account or when notice of the credit is sent to the beneficiary.
Sec. 210.47 Federal Reserve Bank liability; payment of compensation.
(a) Damages. In connection with its handling of a payment order
under this subpart, a Federal Reserve Bank shall not be liable to a
sender, receiving bank, beneficiary, or other Federal Reserve Bank,
governed by this subpart, for any damages other than those payable
under Article 4A. A Federal Reserve Bank shall not agree to be liable
to a sender, receiving bank, beneficiary, or other Federal Reserve Bank
for consequential damages under section 4A-305(d) of Article 4A.
(b) Payment of compensation. (1) A Federal Reserve Bank shall
satisfy its obligation, or that of another Federal Reserve Bank, to pay
compensation in the form of interest under Article 4A by paying such
compensation to a sender, receiving bank, beneficiary, or another party
to the funds transfer that is entitled to such payment in an amount
that is calculated in accordance with section 4A-506 of Article 4A.
(2) If the sender or receiving bank that is the recipient of the
payment of compensation is not the party entitled to compensation under
Article 4A, the sender or receiving bank shall pass through the benefit
of the compensation by making an interest payment, as of the day the
compensation was paid by the Federal Reserve Bank, to the party
entitled to compensation. The interest payment that is made to the
party entitled to compensation shall not be less than the value of the
compensation that was paid by the Federal Reserve Bank to the sender or
receiving bank. The party entitled to compensation may agree to accept
compensation in a form other than a direct interest payment, provided
that such an alternative form of compensation is not less than the
value of the interest payment that otherwise would be made.
(c) Nonwaiver of right of recovery. Nothing in this subpart or any
operating circular issued hereunder shall constitute, or be construed
as constituting, a waiver by a Federal Reserve Bank of a cause of
action for recovery under any applicable law of mistake and
restitution.
Appendix A of Subpart C of Part 210--Commentary
The Commentary provides background material to explain the
intent of the Board of Governors of the Federal Reserve System
(Board) in adopting a particular provision in the subpart and to
help readers interpret that provision. In some comments, examples
are offered. The Commentary constitutes an official Board
interpretation of subpart C of this part. Commentary is not provided
for every provision of subpart C of this part, as some provisions
are self-explanatory.
Section 210.40--Authority, Purpose, and Scope
(a) Authority and purpose. Section 210.40(a) states that the
purpose of subpart C of this part is to provide rules to govern
funds transfers through the FedNow Service and recites the Board's
rulemaking authority for this subpart. Subpart C of this part is
federal law and is not a ``funds-transfer system rule,'' as defined
in section 4A-501(b) of Article 4A, Funds Transfers, of the Uniform
Commercial Code (UCC), as set forth in appendix A of this part.
Certain provisions of Article 4A may not be varied by a funds-
transfer system rule, but under section 4A-107, regulations of the
Board and Operating Circulars of the Federal Reserve Banks supersede
inconsistent provisions of Article 4A to the extent of the
inconsistency. In addition, regulations of the Board may preempt
inconsistent provisions of state law. Accordingly, subpart C of this
part supersedes or preempts inconsistent provisions of state law. It
does not affect state law governing funds transfers that does not
conflict with the provisions of subpart C of this part, such as
Article 4A, as enacted in any state, as such state law may apply to
parties to funds transfers through the FedNow Service whose rights
and obligations are not governed by subpart C of this part.
(b) Scope. (1) Subpart C of this part incorporates the
provisions of Article 4A set forth in appendix A of this part. The
provisions set forth expressly in the sections of subpart C of this
part supersede or preempt any inconsistent provisions of Article 4A
as set forth in appendix A of this part or as enacted in any state.
The official comments to Article 4A are not incorporated
[[Page 31391]]
in subpart C of this part or this commentary to subpart C of this
part, but the official comments may be useful in interpreting
Article 4A as set forth in appendix A of this part. Because section
4A-105 refers to other provisions of the Uniform Commercial Code
(e.g., definitions in article 1 of the UCC), these other provisions
of the UCC, as approved by the National Conference of Commissioners
on Uniform State Laws, which is now also known as the Uniform Law
Commission, and the American Law Institute, from time to time, are
also incorporated into subpart C of this part. Subpart C of this
part applies to any party to a funds transfer sent through the
FedNow Service that is in privity with a Federal Reserve Bank. These
parties include a sender (bank or nonbank) that sends a payment
order to a Federal Reserve Bank through the FedNow Service, a
receiving bank that receives a payment order from a Federal Reserve
Bank, and a beneficiary that receives credit to an account that it
uses or maintains at a Federal Reserve Bank as payment for a payment
order accepted by a Federal Reserve Bank. Subpart C of this part
also applies to Federal Reserve Banks that send or receive payment
orders over the FedNow Service. For example, if a sender settles its
activity over the FedNow Service in the account of a correspondent
bank, the sender's Federal Reserve Bank would be a bank in the funds
transfer chain, but the Federal Reserve Bank of the correspondent
bank would not be a sender or receiving bank with respect to the
payment order and would not be a party to the funds transfer. Other
parties to a funds transfer sent through the FedNow Service are
covered by this subpart to the same extent that this subpart would
apply to them if this subpart were a ``funds-transfer system rule''
under Article 4A that selected subpart C of this part as the
governing law.
(2) The scope of the applicability of a funds-transfer system
rule under Article 4A is specified in section 4A-501(b), and the
scope of the choice of law provision is specified in section 4A-
507(c). Under section 4A-507(c), a choice of law provision is
binding on the participants in a funds-transfer system and certain
other parties having notice that the funds-transfer system might be
used for the funds transfer and of the choice of law provision. The
Uniform Commercial Code provides that a person has notice of a fact
when the person has actual knowledge of it, receives a notice or
notification of it, or has reason to know that it exists from all
the facts and circumstances known to the person at the time in
question. (See UCC section 1-202.) However, under sections 4A-507(b)
and 4A-507(d), a choice of law by agreement of the parties takes
precedence over a choice of law made by funds-transfer system rule.
(3) With respect to funds transfers sent through the FedNow
Service, if originators and beneficiaries that are not in privity
with a Federal Reserve Bank have the notice contemplated by Section
4A-507(c) or if those parties agree to be bound by subpart C of this
part, subpart C of this part generally would apply to those remote
parties. If remote parties to a funds transfer, a portion of which
is sent through the FedNow Service, have expressly selected by
agreement a law other than subpart C of this part under section 4A-
507(b), subpart C of this part would not take precedence over the
choice of law made by the agreement even though the remote parties
had notice that the FedNow Service may be used and of the governing
law. (See 4A-507(d).) In addition, subpart C of this part would not
apply to a funds transfer sent through a funds-transfer system other
than the FedNow Service, even though settlement for the funds
transfer is made by means of a separate funds transfer through the
FedNow Service.
(4) Under section 4A-108, Article 4A does not apply to a funds
transfer, any part of which is governed by the Electronic Fund
Transfer Act (EFTA) (15 U.S.C. 1693 et seq.). A funds transfer from
a consumer originator or a funds transfer to a consumer beneficiary
could be carried out through the FedNow Service and could
potentially be subject to the EFTA and Regulation E (12 CFR part
1005) implementing it. If so, the funds transfer continues to also
be governed by subpart C, except that, in the event of an
inconsistency between the provisions of subpart C and the EFTA, the
EFTA shall prevail to the extent of the inconsistency. (See also the
commentary to section 210.41 in this appendix, ``Payment Order.'')
For example, a funds transfer may be initiated from a consumer's
account at a depository institution, and the depository institution
may execute that payment order by sending a conforming payment order
to a Reserve Bank through the FedNow Service. If that transfer is
subject to the EFTA, then where the consumer subsequently reports
the transfer as an unauthorized electronic fund transfer to its
depository institution and exercises the right to obtain
reimbursement under the terms of the EFTA, the depository
institution would be required to comply with the EFTA even if the
institution does not have a right to reverse the payment order sent
to the Reserve Bank through the FedNow Service under subpart C.
(c) Operating Circulars. The Federal Reserve Banks issue
Operating Circulars consistent with this subpart that contain
additional provisions applicable to payment orders and other
messages sent through the FedNow Service. Under section 4A-107, this
Operating Circular supersedes inconsistent provisions of Article 4A,
both as set forth in appendix A of this part and as enacted in any
state. These Operating Circulars are not funds-transfer system
rules, but, by their terms, they are binding on all parties covered
by this subpart.
(d) Government senders, receiving banks, and beneficiaries. This
section clarifies that unless a statute of the United States
provides otherwise, subpart C of this part applies to governmental
entities.
(e) Financial messaging standards. This paragraph makes clear
that financial messaging standards, including the financial
messaging components, elements, technical documentation, tags, and
terminology used to implement those standards, do not confer or
connote legal status or responsibilities. Instead, subpart C of this
part and Federal Reserve Bank operating circulars govern the rights
and obligations of parties to funds transfers sent through the
FedNow Service as provided in Sec. 210.40(b). Thus, to the extent
there is any inconsistency between a financial messaging standard
adopted by the FedNow Service and subpart C of this part, subpart C
of this part, including Article 4A as set forth in appendix A of
this part, will prevail. In the ISO 20022 financial messaging
standard, for example, the term agent is used to refer to a variety
of bank parties to a funds transfer (e.g., debtor agent, creditor
agent, intermediary agent). Notwithstanding use of that term in the
standard and in message tags, such banks are not the agents of any
party to a funds transfer and owe no duty to any other party to such
a funds transfer except as provided in subpart C of this part
(including Article 4A) or by express agreement. The ISO 20022
financial messaging standard also permits information to be carried
in a funds-transfer message regarding persons that are not parties
to that funds transfer (e.g., ultimate debtor, ultimate creditor,
initiating party) for regulatory, compliance, remittance, or other
purposes. An ``ultimate debtor'' is not an ``originator'' as defined
in Article 4A. The relationship between the ultimate debtor and the
originator (what the ISO 20022 standard calls the ``debtor'') is
determined by law other than Article 4A.
Section 210.41--Definitions
Article 4A defines many terms (e.g., beneficiary, intermediary
bank, receiving bank, security procedure) used in this subpart.
These terms are defined or listed in sections 4A-103 through 4A-105.
These terms, such as the term bank (defined in section 4A-
105(d)(2)), may differ from comparable terms in subpart A and
subpart B of this part. As subpart C of this part incorporates
consistent provisions of Article 4A, it incorporates these
definitions unless these terms are expressly defined otherwise in
subpart C of this part. This subpart modifies the definitions of
five Article 4A terms: Beneficiary, beneficiary's bank, payment
order, receiving bank, and sender. This subpart also defines terms
not defined in Article 4A.
Article 4A. Article 4A means the version of that article of the
Uniform Commercial Code set forth in appendix A of this part. It
does not refer to the law of any particular state unless the context
indicates otherwise. Subject to the express provisions of this
Subpart, this version of Article 4A is incorporated into this
subpart and made federal law for transactions covered by this
subpart. (See Sec. 210.40(b)(1) and accompanying commentary.)
Because section 4A-105 refers to other provisions of the Uniform
Commercial Code (e.g., definitions in article 1 of the UCC) these
other provisions of the UCC, as approved by the National Conference
of Commissioners on Uniform State Laws, which is now also known as
the Uniform Law Commission, and the American Law Institute, from
time to time, are also incorporated in subpart C of this part.
Beneficiary, beneficiary's bank, receiving bank, and sender. The
definitions of ``beneficiary,'' ``beneficiary's bank,'' ``receiving
bank,'' and ``sender'' in subpart C of this part differ from the
definitions in sections 4A-103(a)(2)-(4). The subpart C
[[Page 31392]]
definition clarifies that, for the purposes of subpart C of this
part, these terms are limited to parties in a funds transfer that is
sent through the FedNow Service. For example, the parties to a funds
transfer that is sent through the Fedwire Funds Service would be
governed by subpart B of this part, and would not be a
``beneficiary,'' ``beneficiary's bank,'' ``receiving bank,'' or
``sender'' governed by subpart C. The definition of ``beneficiary's
bank'' in subpart C further clarifies that where a Federal Reserve
Bank functions as the beneficiary's bank, it need not be identified
in the payment order as the beneficiary's bank and that a Federal
Reserve Bank that receives a payment order as beneficiary is also
the beneficiary's bank with respect to that payment order.
The FedNow Service. The FedNow Service refers to the funds-
transfer system owned and operated by the Federal Reserve Banks to
support instant payments that is governed by this Subpart. The term
does not refer to any particular computer, telecommunications
facility, or funds transfer, but rather to the system as a whole.
The FedNow Service does not include the Fedwire Funds Service or the
system used for automated clearing house transfers.
Payment Order. (1) The definition of ``payment order'' in
subpart C of this part differs from the section 4A-103(a)(1)
definition. The subpart C definition clarifies that, for the
purposes of subpart C of this part, the term includes only
instructions transmitted through the FedNow Service. For example,
instructions transmitted through the Fedwire Funds Service would be
governed by subpart B of this part, and not subpart C.
Additionally, the subpart C definition provides that certain
messages that are transmitted through the FedNow Service are not
payment orders. Federal Reserve Banks and banks participating in the
FedNow Service send various types of messages relating to payment
orders or to other matters, through the FedNow Service, that are not
intended to be payment orders. In some cases, messages sent through
the FedNow Service, such as certain requests for payment, may be
payment orders under Article 4A, but are not treated as payment
orders under subpart C because they are not an instruction to a
Federal Reserve Bank to pay or cause another bank to pay money.
Under the subpart C definition, these messages are not ``payment
orders'' governed by this subpart. The operating circulars of the
Federal Reserve Banks may specify those messages that may be
transmitted through the FedNow Service but that are not payment
orders.
(2) Subpart C, including its incorporation of Article 4A,
governs a payment order even though the originator's or
beneficiary's account may be a consumer account established
primarily for personal, family, or household purposes. Under section
4A-108, Article 4A does not apply to a funds transfer any part of
which is governed by the Electronic Fund Transfer Act. That Act, and
Regulation E (12 CFR part 1005) implementing it, may govern a
transfer through the FedNow Service that is from a consumer
originator or to a consumer beneficiary. In the event that a
transfer through the FedNow Service is subject to the EFTA, the
transfer continues to also be governed by this subpart, except that,
in the event of an inconsistency between the provisions of subpart C
and the EFTA, the EFTA shall prevail to the extent of the
inconsistency. (See also Sec. 210.40(b) and accompanying
commentary.) Thus, this subpart applies to all funds transfers
through the FedNow Service even though some such transfers involve
originators or beneficiaries that are consumers.
Sender's settlement account, receiving bank's settlement
account, and beneficiary's settlement account. A FedNow participant
must designate an account on the books of a Federal Reserve Bank
that the Federal Reserve Banks may use to settle the participant's
activity over the FedNow Service. A FedNow participant may settle
its activity over the FedNow Service in its master account.
Alternatively, it may designate the account of a correspondent bank
that the Federal Reserve Banks may use to settle activity through
the service, subject to the correspondent bank's agreement to any
such designation.
Section 210.42--Reliance on Identifying Number
(a) Reliance by a Federal Reserve Bank on number to identify
intermediary bank or beneficiary's bank. Section 4A-208 provides
that a receiving bank, such as a Federal Reserve Bank, may rely on
the routing number of an intermediary bank or the beneficiary's bank
specified in a payment order as identifying the appropriate
intermediary bank or beneficiary's bank, even if the payment order
identifies another bank by name, provided that the receiving bank
does not know of the inconsistency. Under section 4A-208(b)(2), if
the sender of the payment order is not a bank, a receiving bank may
rely on the number only if the sender had notice before the
receiving bank accepted the sender's order that the receiving bank
might rely on the number. This section provides this notice to
entities that are not banks, such as the Department of the Treasury,
that send payment orders directly to a Federal Reserve Bank through
the FedNow Service.
(b) Reliance by a Federal Reserve Bank on number to identify
beneficiary. Section 4A-207 provides that a beneficiary's bank, such
as a Federal Reserve Bank, may rely on the number identifying a
beneficiary, such as the beneficiary's account number, specified in
a payment order as identifying the appropriate beneficiary, even if
the payment order identifies another beneficiary by name, provided
that the beneficiary's bank does not know of the inconsistency.
Under section 4A-207(c)(2), if the originator is not a bank, an
originator is not obliged to pay for a payment order if the
originator did not have notice that the beneficiary's bank might
rely on the identifying number and the person paid on the basis of
the identifying number was not entitled to receive payment. This
section of subpart C provides this notice to entities that are not
banks, such as the Department of the Treasury, that are originators
of payment orders sent directly by the originators to a Federal
Reserve Bank through the FedNow Service, where that Federal Reserve
Bank or another Federal Reserve Bank is the beneficiary's bank (see
also section 4A-402(b), providing that a sender must pay a
beneficiary's bank for a payment order accepted by the beneficiary's
bank).
Section 210.43--Agreement of Sender
(a) Payment of sender's obligation to a Federal Reserve Bank.
When a sender sends a payment order to a Federal Reserve Bank and
the Federal Reserve Bank accepts the payment order by issuing a
conforming order executing the sender's payment order, under section
4A-402, the sender is indebted to the Federal Reserve Bank for the
amount of the payment order. Section 4A-403 specifies the various
methods by which a sender may settle the obligation under section
4A-402. With respect to a payment order sent through the FedNow
Service, the obligation of a sender (other than a Federal Reserve
Bank) is settled by a debit to the account of the sender at a
Federal Reserve Bank. Section 210.43(a) provides that a sender,
other than a Federal Reserve Bank, that maintains or uses a
settlement account at a Federal Reserve Bank authorizes its Federal
Reserve Bank to debit, or cause any other Federal Reserve Bank on
whose books the settlement account is maintained to debit, that
account, so that the Federal Reserve Bank can obtain payment for the
payment order.
(b) Overdrafts. (1) In some cases, debits to a sender's
settlement account will create an overdraft in the settlement
account. The Board and the Federal Reserve Banks have established
policies concerning when a Federal Reserve Bank will permit a bank
to incur an overdraft in its account at a Federal Reserve Bank.
These policies do not give a bank or other sender a right to an
overdraft in its account. Subpart C clarifies that a sender does not
have a right to such an overdraft. If an overdraft arises, it
becomes immediately due and payable at the earliest of the following
times: The end of the FedNow funds-transfer business day; the time
the Federal Reserve Bank in its sole discretion, deems itself
insecure and gives notice to the sender; or the time that the sender
suspends payments or is closed by governmental action, such as the
appointment of a receiver. In some cases, a Federal Reserve Bank
extends its FedNow operations beyond the standard cut-off time for
that FedNow funds-transfer business day. For the purposes of this
section, unless otherwise specified by the Federal Reserve Bank
making such an extension, an overdraft becomes due and payable at
the end of the extended operating hours. An overdraft becomes due
and payable prior to a Federal Reserve Bank's cut-off time if the
Federal Reserve Bank deems itself insecure and gives notice to the
sender. A Federal Reserve Bank that deems itself insecure may give
such notice in accordance with the provisions on notice in section
1-202(d) of the UCC, in accordance with any other applicable law or
agreement, or by any other reasonable means. An overdraft also
becomes due and payable at the time that a bank is closed or
suspends payments. For example, an overdraft
[[Page 31393]]
becomes due and payable if a receiver is appointed for the bank or
the bank is prevented from making payments by governmental order.
The Federal Reserve Bank need not make demand on the sender for the
overdraft to become due and payable.
(2) A sender must cover any overdraft and any other obligation
of the sender to the Federal Reserve Bank by the time the overdraft
becomes due and payable. By sending a payment order to a Federal
Reserve Bank, the sender grants a security interest to the Federal
Reserve Bank in all of the assets of the sender possessed or
controlled by, or held for the account of, the Federal Reserve Bank
in order to secure all obligations due or to become due to the
Federal Reserve Bank. The security interest attaches when the
overdraft, or other obligation of the sender to the Federal Reserve
Bank, becomes due and payable. The security interest does not apply
to assets held by the sender as custodian or trustee for the
sender's customers or third parties. Once an overdraft is due and
payable, a Federal Reserve Bank may exercise its right of set off,
liquidate collateral, or take other similar action to satisfy the
obligation the sender owes to the Federal Reserve Bank.
(c) Review of payment orders. (1) Under section 4A-204, a
receiving bank is required to refund the principal amount of an
unauthorized payment order that the sender was not obliged to pay,
together with interest on the refundable amount calculated from the
date that the receiving bank received payment to the date of the
refund. The sender is not entitled to compensation in the form of
interest if the sender fails to exercise ordinary care to determine
that the order was not authorized and to notify the receiving bank
within a reasonable time after the sender receives a notice that the
payment order was accepted or that the sender's account was debited
with respect to the order. Similarly, under section 4A-304, if a
sender of a payment order that was erroneously executed does not
notify the bank receiving the payment order within a reasonable
time, the bank is not liable to the sender for compensation in the
form of interest on any amount refundable to the sender. Section
210.43(c) establishes 60 calendar days as the reasonable period of
time for the purposes of these provisions of Article 4A.
(2) Section 4A-505 provides that in order for a customer to
assert a claim objecting to a debit to its account by a receiving
bank, the customer must notify the receiving bank of its objection
within one year after the customer received notification reasonably
identifying the payment order. Subpart C of this part does not vary
this one-year claim preclusion period.
Section 210.44--Agreement of Receiving Bank
(b) Funds availability. (1) Section 4A-209(b) provides that a
beneficiary's bank accepts a payment order at the earliest of
certain specified events, including when the bank receives payment
for the entire amount of the order from the sender (see section 4A-
209(b)(2)). Section 4A-404(a) provides that if a beneficiary's bank
accepts a payment order, it is obliged to pay the amount of a
payment order to the beneficiary on the payment date unless
acceptance of the payment order occurs on the payment date after the
close of the funds-transfer business day of the bank. Section 4A-
405(a) provides that if a beneficiary's bank pays the beneficiary by
crediting an account of the beneficiary on its own books, payment of
the bank's obligation under Section 4A-404(a) occurs when and to the
extent (i) the bank notifies the beneficiary that it may withdraw
the amount of the credit, (ii) the bank lawfully applies the credit
to a debt of the beneficiary, or (iii) funds with respect to the
payment order are otherwise made available to the beneficiary by the
bank.
(2) Section 210.44(b)(1) provides that if a FedNow participant
that is the beneficiary's bank accepts a payment order, it must pay
the beneficiary by credit to the beneficiary's account in accordance
with section 4A-405(a) of Article 4A, and it must do so immediately
after its acceptance of the payment order. This section further
clarifies that the provisions of the Expedited Funds Availability
Act (12 U.S.C. 4002(a)) and its implementing regulation, Regulation
CC (12 CFR part 229), also govern. Regulation CC provides that funds
received by a bank by an electronic payment shall be available for
withdrawal not later than the business day after the banking day on
which such funds are received. (12 CFR 229.10(b).) Because Subpart C
of this part requires funds to be made available on a more prompt
basis than the availability requirements of the Expedited Funds
Availability Act and Regulation CC, that act and Regulation CC do
not preempt or invalidate subpart C. For example, if a beneficiary's
bank accepts a payment order through the FedNow Service at 10 a.m.
but does not make funds available to the beneficiary until 5p.m.,
the bank has failed to satisfy its obligations under subpart C of
this part even if it has satisfied its obligations under Regulation
CC.
(3) Section 210.44(b)(2) clarifies that the obligation for the
beneficiary's bank to provide immediate funds availability to the
beneficiary under section 210.44(b)(1), and any Operating Circular
issued in accordance with subpart C, should not be construed as
creating any rights that the beneficiary or any party other than a
Federal Reserve Bank may assert against the beneficiary's bank, or
affect any liability of the beneficiary's bank to the beneficiary or
any party other than a Federal Reserve Bank under Article 4A or
other law. In the example in this paragraph (b), where the
beneficiary's bank accepts a payment order through the FedNow
Service at 10 a.m. but does not make funds available to the
beneficiary until 5 p.m., the bank has failed to satisfy its
obligations under Sec. 210.44(b)(1) but the beneficiary would not
have a claim or right to assert against the bank under that
provision.
(4) Section 210.46(a) provides that payment by a Federal Reserve
Bank to a receiving bank occurs when the receiving bank's settlement
account is credited or when the payment order is sent by the Federal
Reserve Bank to the receiving bank, whichever is earlier, and would
ordinarily be considered acceptance of the payment order by the
beneficiary's bank under section 4A-209(b). Section 210.44(b)(3)
provides that notwithstanding section 4A-209(b), in certain
circumstances a beneficiary's bank is not deemed to accept a payment
order at such time as it receives payment from its Federal Reserve
Bank. Specifically, where the beneficiary's bank has reasonable
cause to believe that the beneficiary is not entitled or permitted
to receive payment and the beneficiary's bank notifies its Federal
Reserve Bank that it requires additional time to determine whether
to accept the payment order, this section provides that for purposes
of subpart C and Article 4A, the beneficiary's bank does not accept
the payment order even if it has received payment for the entire
amount of the order from its Federal Reserve Bank as provided in
Sec. 210.46. For example, if the beneficiary's bank has reasonable
cause to believe that making funds available to the beneficiary may
violate applicable U.S. sanctions, the beneficiary's bank may notify
its Federal Reserve Bank that it requires additional time to
determine whether to accept the payment order, including to
investigate if the beneficiary is subject to applicable sanctions;
in the event the beneficiary's bank gives such notice, the
beneficiary's bank would not be deemed to have accepted the payment
order at the time it receives payment from its Federal Reserve Bank.
Section 210.45--Payment Orders
(a) Rejection. (1) A sender must make arrangements with its
Federal Reserve Bank before it can send payment orders to the
Federal Reserve Bank. Federal Reserve Banks reserve the right to
reject or impose conditions on the acceptance of payment orders for
any reason. For example, a Federal Reserve Bank might reject or
impose conditions on accepting a payment order where a sender does
not have sufficient funds in its settlement account with the Federal
Reserve Bank to cover the amount of the sender's payment order and
other obligations of the sender due or to become due to the Federal
Reserve Bank. As a further example, a Federal Reserve Bank may
reject a payment order that is not successfully processed within
time limits established by the Federal Reserve Banks. A Federal
Reserve Bank may require a sender to execute a written agreement
concerning security procedures or other matters before the sender
may send payment orders to the Federal Reserve Bank.
(b) Selection of an intermediary bank. (1) Under section 4A-302,
if a receiving bank (other than a beneficiary's bank), such as a
Federal Reserve Bank, accepts a payment order, it must issue a
payment order that complies with the sender's order. The sender's
order may include instructions concerning an intermediary bank to be
used that must be followed by a receiving bank (see section 4A-
302(a)(1)). If the sender does not designate any intermediary bank
in its payment order, the receiving bank may select an intermediary
bank through which the sender's payment order can be expeditiously
issued to the beneficiary's bank so long as the receiving bank
exercises ordinary care in selecting the intermediary bank (see
section 4A-302(b)).
[[Page 31394]]
(2) This section provides that in an interdistrict transfer, a
Federal Reserve Bank is authorized and directed to select another
Federal Reserve Bank as an intermediary bank. A sender may not
instruct a Federal Reserve Bank to use a particular intermediary
bank or to use its discretion to select an intermediary bank other
than a Federal Reserve Bank or an intermediary bank designated by
the sender. In addition, a sender may not send a payment order
through the FedNow Service that instructs a Federal Reserve Bank to
use a funds-transfer system or means of transmission other than the
FedNow Service, unless the sender and the Federal Reserve Bank agree
in writing to the use of that funds-transfer system or means of
transmission.
(c) Execution date and payment date. (1) Under 4A-301(b), the
``execution date'' of a payment order means the day on which the
receiving bank may properly issue a payment order in execution of
the sender's order. Under section 4A-401, the ``payment date'' of a
payment order is the day on which the amount of the order is payable
to the beneficiary by the beneficiary's bank. The execution date and
the payment date may be determined by instruction of the sender but
cannot be earlier than the day the order is received and, unless
otherwise determined, is the day the order is received (see sections
4A-301(b) and 4A-401). Section 4A-106, provides for the time that a
payment order is received, including in the event that a receiving
bank fixes a cut-off time for the receipt and processing of payment
orders. If the bank receives a payment order after its cut-off time,
the bank may treat the payment order as received at the opening of
the next funds-transfer business day (see section 4A-106(a)).
(2) The FedNow Service is designed to be an instant value
transfer system through which funds may be transferred from the
originator to the beneficiary on the same funds-transfer business
day. This section provides that a sender may not send a payment
order to a Federal Reserve Bank that specifies an execution date or
payment date later than the day on which the payment order is
issued, unless the sender of the order and the Federal Reserve Bank
agree in writing to the arrangement.
Section 210.46--Payment by a Federal Reserve Bank to a Receiving
Bank or Beneficiary
(a) Payment to a receiving bank. (1) Under section 4A-402, when
a Federal Reserve Bank executes a sender's payment order by issuing
a conforming order to a receiving bank that accepts the payment
order, the Federal Reserve Bank must pay the receiving bank the
amount of the payment order. Section 210.44(a) authorizes a Federal
Reserve Bank to make the payment by crediting, or causing any other
Federal Reserve Bank on whose books the settlement account is
maintained to credit, the settlement account of the receiving bank.
Section 210.46(a) provides that the payment occurs when the
receiving bank's settlement account is credited or when the payment
order is sent by the Federal Reserve Bank to the receiving bank,
whichever is earlier. Ordinarily, payment will occur during the
FedNow funds-transfer business day a short time after the payment
order is received. This credit is final and irrevocable when made
and constitutes final settlement under section 4A-403. Payment does
not waive a Federal Reserve Bank's right of recovery under the
applicable law of mistake and restitution (see Sec. 210.47(c)),
affect a Federal Reserve Bank's right to apply the funds to any
obligation due or to become due to the Federal Reserve Bank, or
affect legal process or claims by third parties on the funds.
(2) This section on final payment does not apply to settlement
for payment orders between Federal Reserve Banks. These payment
orders are settled by other means.
(b) Payment to a beneficiary. Section 210.46(b) specifies when a
Federal Reserve Bank makes payment to a beneficiary for which it is
the beneficiary's bank. As in the case of payment to a receiving
bank, this payment occurs at the earlier of the time that the
Federal Reserve Bank credits the beneficiary's settlement account or
sends notice of the credit to the beneficiary, and is final and
irrevocable when made.
Section 210.47--Federal Reserve Bank Liability; Payment of
Compensation
(a) Damages. (1) Under section 4A-305(d), damages for failure of
a receiving bank to execute a payment order that it was obligated to
execute by express agreement are limited to expenses in the
transaction and incidental expenses and interest and do not include
additional damages, including consequential damages, unless they are
provided for in an express written agreement of the receiving bank.
This section clarifies that in connection with the handling of
payment orders, Federal Reserve Banks may not agree to be liable for
consequential damages under this provision and shall not be liable
for damages other than those that may be due under Article 4A to
parties governed by this subpart. Any agreement in conflict with
these provisions would not be effective, because it would be in
violation of subpart C.
(2) This section does not affect the ability of other parties to
a funds transfer to agree to be liable for consequential damages,
the liability of a Federal Reserve Bank under section 4A-404
(relating to obligation of beneficiary's bank to pay and give notice
to beneficiary), or the liability to parties governed by subpart C
for claims not based on the handling of a payment order under
subpart C.
(b) Payment of compensation. (1) Under Article 4A, a Federal
Reserve Bank may be required to pay compensation in the form of
interest to another party in connection with its handling of a funds
transfer. For example, payment of compensation in the form of
interest is required in certain situations pursuant to sections 4A-
204 (relating to refund of payment and duty of customer to report
with respect to unauthorized payment order), 4A-209 (relating to
acceptance of payment order), 4A-210 (relating to rejection of
payment order), 4A-304 (relating to duty of sender to report
erroneously executed payment order), 4A-305 (relating to liability
for late or improper execution or failure to execute a payment
order), 4A-402 (relating to obligation of sender to pay receiving
bank), and 4A-404 (relating to obligation of beneficiary's bank to
pay and give notice to beneficiary).
(2) Section 210.47(b) requires Federal Reserve Banks to provide
compensation through payment in the form of interest. Under section
4A-506(a), the amount of such interest may be determined by
agreement between the sender and receiving bank or by funds-transfer
system rule. If there is no such agreement, under section 4A-506(b),
the amount of interest is based on the federal funds rate.
Similarly, compensation in the form of interest will be paid to
government senders, receiving banks, or beneficiaries described in
Sec. 210.40(d) if they are entitled to interest under subpart C. A
Federal Reserve Bank may also, in its discretion, pay compensation
in the form of interest directly to a remote party to a transfer
through the FedNow Service that is entitled to interest, rather than
providing compensation to its sender or receiving bank.
(3) If a sender or receiving bank that received a payment of
compensation is not the party entitled to compensation under Article
4A, the sender or receiving bank must pass the benefit of the
compensation payment made to it to the party that is entitled to
compensation. The benefit may be passed on either in the form of a
direct payment of interest or in the form of a compensating balance,
if the party entitled to interest agrees to accept the other form of
compensation. In the latter case, the value of the compensating
balance must be at least equivalent to the value of the interest
payment that otherwise would have been provided.
(c) Nonwaiver of right of recovery. Several sections of Article
4A allow a party to a funds transfer to make a claim pursuant to the
applicable law of mistake and restitution. Nothing in subpart C of
this part or any Operating Circular issued in accordance with
subpart C of this part waives any such claim by a Federal Reserve
Bank. A Federal Reserve Bank, however, may waive such a claim by
express written agreement in order to settle litigation or for other
purposes.
0
13. Add Appendix A of part 210 to read as follows:
Appendix A of Part 210--Article 4A, Funds Transfers
Part 1--Subject Matter and Definitions
Section 4A-101. Short Title
This Article may be cited as Uniform Commercial Code--Funds
Transfers.
Section 4A-102. Subject Matter
Except as otherwise provided in section 4A-108, this Article
applies to funds transfers defined in section 4A-104.
Section 4A-103. Payment Order--Definitions
(a) In this Article:
(1) Payment order means an instruction of a sender to a
receiving bank, transmitted orally, electronically, or in writing,
to pay, or to cause another bank to pay, a fixed or determinable
amount of money to a beneficiary if:
[[Page 31395]]
(i) The instruction does not state a condition to payment to the
beneficiary other than time of payment,
(ii) The receiving bank is to be reimbursed by debiting an
account of, or otherwise receiving payment from, the sender, and
(iii) The instruction is transmitted by the sender directly to
the receiving bank or to an agent, funds-transfer system, or
communication system for transmittal to the receiving bank.
(2) Beneficiary means the person to be paid by the beneficiary's
bank.
(3) ``Beneficiary's bank'' means the bank identified in a
payment order in which an account of the beneficiary is to be
credited pursuant to the order or which otherwise is to make payment
to the beneficiary if the order does not provide for payment to an
account.
(4) Receiving bank means the bank to which the sender's
instruction is addressed.
(5) Sender means the person giving the instruction to the
receiving bank.
(b) If an instruction complying with paragraph (a)(1) of this
section is to make more than one payment to a beneficiary, the
instruction is a separate payment order with respect to each
payment.
(c) A payment order is issued when it is sent to the receiving
bank.
Section 4A-104. Funds Transfer--Definitions
In this Article:
(a) Funds transfer means the series of transactions, beginning
with the originator's payment order, made for the purpose of making
payment to the beneficiary of the order. The term includes any
payment order issued by the originator's bank or an intermediary
bank intended to carry out the originator's payment order. A funds
transfer is completed by acceptance by the beneficiary's bank of a
payment order for the benefit of the beneficiary of the originator's
payment order.
(b) Intermediary bank means a receiving bank other than the
originator's bank or the beneficiary's bank.
(c) Originator means the sender of the first payment order in a
funds transfer.
(d) Originator's bank means (i) the receiving bank to which the
payment order of the originator is issued if the originator is not a
bank, or (ii) the originator if the originator is a bank.
Section 4A-105. Other Definitions
(a) In this Article:
(1) Authorized account means a deposit account of a customer in
a bank designated by the customer as a source of payment of payment
orders issued by the customer to the bank. If a customer does not so
designate an account, any account of the customer is an authorized
account if payment of a payment order from that account is not
inconsistent with a restriction on the use of that account.
(2) Bank means a person engaged in the business of banking and
includes a savings bank, savings and loan association, credit union,
and trust company. A branch or separate office of a bank is a
separate bank for purposes of this Article.
(3) Customer means a person, including a bank, having an account
with a bank or from whom a bank has agreed to receive payment
orders.
(4) Funds-transfer business day of a receiving bank means the
part of a day during which the receiving bank is open for the
receipt, processing, and transmittal of payment orders and
cancellations and amendments of payment orders.
(5) Funds-transfer system means a wire transfer network,
automated clearing house, or other communication system of a
clearing house or other association of banks through which a payment
order by a bank may be transmitted to the bank to which the order is
addressed.
(6) Good faith means honesty in fact and the observance of
reasonable commercial standards of fair dealing.
(7) Prove with respect to a fact means to meet the burden of
establishing the fact (Section 1-201(8)).
(b) Other definitions applying to this Article and the sections
in which they appear are:
``Acceptance''. . . . . Sec. 4A-209
``Beneficiary''. . . . . Sec. 4A-103
``Beneficiary's bank''. . . . . Sec. 4A-103
``Executed''. . . . . Sec. 4A-301
``Execution date''. . . . . Sec. 4A-301
``Funds transfer''. . . . . Sec. 4A-104
``Funds-transfer system rule''. . . . . Sec. 4A-501
``Intermediary bank''. . . . . Sec. 4A-104
``Originator''. . . . . Sec. 4A-104
``Originator's bank''. . . . . Sec. 4A-104
``Payment by beneficiary's bank to beneficiary''. . . . . Sec. 4A-
405
``Payment by originator to beneficiary''. . . . . Sec. 4A-406
``Payment by sender to receiving bank''. . . . . Sec. 4A-403
``Payment date''. . . . . Sec. 4A-401
``Payment order''. . . . . Sec. 4A-103
``Receiving bank''. . . . . Sec. 4A-103
``Security procedure''. . . . . Sec. 4A-201
``Sender''. . . . . Sec. 4A-103
(c) The following definitions in Article 4 apply to this
Article:
``Clearing house'' . . . . . Sec. 4-104
``Item'' . . . . . Sec. 4-104
``Suspends payments'' . . . . . Sec. 4-104
(d) In addition Article 1 contains general definitions and
principles of construction and interpretation applicable throughout
this Article.
Section 4A-106. Time Payment Order is Received
(a) The time of receipt of a payment order or communication
canceling or amending a payment order is determined by the rules
applicable to receipt of a notice stated in Section 1-201(27). A
receiving bank may fix a cut-off time or times on a funds-transfer
business day for the receipt and processing of payment orders and
communications canceling or amending payment orders. Different cut-
off times may apply to payment orders, cancellations, or amendments,
or to different categories of payment orders, cancellations, or
amendments. A cut-off time may apply to senders generally or
different cut-off times may apply to different senders or categories
of payment orders. If a payment order or communication canceling or
amending a payment order is received after the close of a funds-
transfer business day or after the appropriate cut-off time on a
funds-transfer business day, the receiving bank may treat the
payment order or communication as received at the opening of the
next funds-transfer business day.
(b) If this Article refers to an execution date or payment date
or states a day on which a receiving bank is required to take
action, and the date or day does not fall on a funds-transfer
business day, the next day that is a funds-transfer business day is
treated as the date or day stated, unless the contrary is stated in
this Article.
Section 4A-107. Federal Reserve Regulations and Operating Circulars
Regulations of the Board of Governors of the Federal Reserve
System and operating circulars of the Federal Reserve Banks
supersede any inconsistent provision of this Article to the extent
of the inconsistency.
Section 4A-108. Relationship to Electronic Fund Transfer Act
(a) Except as provided in subsection (b), this Article does not
apply to a funds transfer any part of which is governed by the
Electronic Fund Transfer Act of 1978 (Title XX, Public Law 95-630,
92 Stat. 3728, 15 U.S.C. 1693 et seq.) as amended from time to time.
(b) This Article applies to a funds transfer that is a
remittance transfer as defined in the Electronic Fund Transfer Act
(15 U.S.C. Sec. 1693o-1) as amended from time to time, unless the
remittance transfer is an electronic fund transfer as defined in the
Electronic Fund Transfer Act (15 U.S.C. Sec. 1693a) as amended from
time to time.
(c) In a funds transfer to which this Article applies, in the
event of an inconsistency between an applicable provision of this
Article and an applicable provision of the Electronic Fund Transfer
Act, the provision of the Electronic Fund Transfer Act governs to
the extent of the inconsistency.
Part 2--Issue and Acceptance of Payment Order
Section 4A-201. Security Procedure
Security procedure means a procedure established by agreement of
a customer and a receiving bank for the purpose of (i) verifying
that a payment order or communication amending or canceling a
payment order is that of the customer, or (ii) detecting error in
the transmission or the content of the payment order or
communication. A security procedure may require the use of
algorithms or other codes, identifying words or numbers, encryption,
callback procedures, or similar security devices. Comparison of a
signature on a payment order or communication with an authorized
specimen signature of the customer is not by itself a security
procedure.
Section 4A-202. Authorized and Verified Payment Orders
(a) A payment order received by the receiving bank is the
authorized order of the person identified as sender if that person
authorized the order or is otherwise bound by it under the law of
agency.
(b) If a bank and its customer have agreed that the authenticity
of payment orders issued to the bank in the name of the
[[Page 31396]]
customer as sender will be verified pursuant to a security
procedure, a payment order received by the receiving bank is
effective as the order of the customer, whether or not authorized,
if (i) the security procedure is a commercially reasonable method of
providing security against unauthorized payment orders, and (ii) the
bank proves that it accepted the payment order in good faith and in
compliance with the security procedure and any written agreement or
instruction of the customer restricting acceptance of payment orders
issued in the name of the customer. The bank is not required to
follow an instruction that violates a written agreement with the
customer or notice of which is not received at a time and in a
manner affording the bank a reasonable opportunity to act on it
before the payment order is accepted.
(c) Commercial reasonableness of a security procedure is a
question of law to be determined by considering the wishes of the
customer expressed to the bank, the circumstances of the customer
known to the bank, including the size, type, and frequency of
payment orders normally issued by the customer to the bank,
alternative security procedures offered to the customer, and
security procedures in general use by customers and receiving banks
similarly situated. A security procedure is deemed to be
commercially reasonable if (i) the security procedure was chosen by
the customer after the bank offered, and the customer refused, a
security procedure that was commercially reasonable for that
customer, and (ii) the customer expressly agreed in writing to be
bound by any payment order, whether or not authorized, issued in its
name and accepted by the bank in compliance with the security
procedure chosen by the customer.
(d) The term sender in this Article includes the customer in
whose name a payment order is issued if the order is the authorized
order of the customer under subsection (a) of this section, or it is
effective as the order of the customer under subsection (b) of this
section.
(e) This section applies to amendments and cancellations of
payment orders to the same extent it applies to payment orders.
(f) Except as provided in this section and in section 4A-
203(a)(1), rights and obligations arising under this section or
section 4A-203 may not be varied by agreement.
Section 4A-203. Unenforceability of Certain Verified Payment Orders
(a) If an accepted payment order is not, under section 4A-
202(a), an authorized order of a customer identified as sender, but
is effective as an order of the customer pursuant to section 4A-
202(b), the following rules apply:
(1) By express written agreement, the receiving bank may limit
the extent to which it is entitled to enforce or retain payment of
the payment order.
(2) The receiving bank is not entitled to enforce or retain
payment of the payment order if the customer proves that the order
was not caused, directly or indirectly, by a person (i) entrusted at
any time with duties to act for the customer with respect to payment
orders or the security procedure, or (ii) who obtained access to
transmitting facilities of the customer or who obtained, from a
source controlled by the customer and without authority of the
receiving bank, information facilitating breach of the security
procedure, regardless of how the information was obtained or whether
the customer was at fault. Information includes any access device,
computer software, or the like.
(b) This section applies to amendments of payment orders to the
same extent it applies to payment orders.
Section 4A-204. Refund of Payment and Duty of Customer To Report With
Respect to Unauthorized Payment Order
(a) If a receiving bank accepts a payment order issued in the
name of its customer as sender which is (i) not authorized and not
effective as the order of the customer under section 4A-202, or (ii)
not enforceable, in whole or in part, against the customer under
section 4A-203, the bank shall refund any payment of the payment
order received from the customer to the extent the bank is not
entitled to enforce payment and shall pay interest on the refundable
amount calculated from the date the bank received payment to the
date of the refund. However, the customer is not entitled to
interest from the bank on the amount to be refunded if the customer
fails to exercise ordinary care to determine that the order was not
authorized by the customer and to notify the bank of the relevant
facts within a reasonable time not exceeding 90 days after the date
the customer received notification from the bank that the order was
accepted or that the customer's account was debited with respect to
the order The bank is not entitled to any recovery from the customer
on account of a failure by the customer to give notification as
stated in this section.
(b) Reasonable time under subsection (a) of this section may be
fixed by agreement as stated in section 1-204(1), but the obligation
of a receiving bank to refund payment as stated in subsection (a)
may not otherwise be varied by agreement.
Section 4A-205. Erroneous Payment Orders
(a) If an accepted payment order was transmitted pursuant to a
security procedure for the detection of error and the payment order
(i) erroneously instructed payment to a beneficiary not intended by
the sender, (ii) erroneously instructed payment in an amount greater
than the amount intended by the sender, or (iii) was an erroneously
transmitted duplicate of a payment order previously sent by the
sender, the following rules apply:
(1) If the sender proves that the sender or a person acting on
behalf of the sender pursuant to section 4A-206 complied with the
security procedure and that the error would have been detected if
the receiving bank had also complied, the sender is not obliged to
pay the order to the extent stated in this paragraphs (2) and (3).
(2) If the funds transfer is completed on the basis of an
erroneous payment order described in clause (i) or (iii) of
subsection (a), the sender is not obliged to pay the order and the
receiving bank is entitled to recover from the beneficiary any
amount paid to the beneficiary to the extent allowed by the law
governing mistake and restitution.
(3) If the funds transfer is completed on the basis of a payment
order described in clause (ii) of subsection (a), the sender is not
obliged to pay the order to the extent the amount received by the
beneficiary is greater than the amount intended by the sender. In
that case, the receiving bank is entitled to recover from the
beneficiary the excess amount received to the extent allowed by the
law governing mistake and restitution.
(b) If (i) the sender of an erroneous payment order described in
subsection (a) is not obliged to pay all or part of the order, and
(ii) the sender receives notification from the receiving bank that
the order was accepted by the bank or that the sender's account was
debited with respect to the order, the sender has a duty to exercise
ordinary care, on the basis of information available to the sender,
to discover the error with respect to the order and to advise the
bank of the relevant facts within a reasonable time, not exceeding
90 days, after the bank's notification was received by the sender.
If the bank proves that the sender failed to perform that duty, the
sender is liable to the bank for the loss the bank proves it
incurred as a result of the failure, but the liability of the sender
may not exceed the amount of the sender's order.
(c) This section applies to amendments to payment orders to the
same extent it applies to payment orders.
Section 4A-206. Transmission of Payment Order Through Funds-Transfer or
Other Communication System
(a) If a payment order addressed to a receiving bank is
transmitted to a funds-transfer system or other third-party
communication system for transmittal to the bank, the system is
deemed to be an agent of the sender for the purpose of transmitting
the payment order to the bank. If there is a discrepancy between the
terms of the payment order transmitted to the system and the terms
of the payment order transmitted by the system to the bank, the
terms of the payment order of the sender are those transmitted by
the system. This section does not apply to a funds-transfer system
of the Federal Reserve Banks.
(b) This section applies to cancellations and amendments of
payment orders to the same extent it applies to payment orders.
Section 4A-207. Misdescription of Beneficiary
(a) Subject to subsection (b), if, in a payment order received
by the beneficiary's bank, the name, bank account number, or other
identification of the beneficiary refers to a nonexistent or
unidentifiable person or account, no person has rights as a
beneficiary of the order and acceptance of the order cannot occur.
(b) If a payment order received by the beneficiary's bank
identifies the beneficiary both by name and by an identifying or
bank account number and the name and number identify different
persons, the following rules apply:
(1) Except as otherwise provided in subsection (c), if the
beneficiary's bank does not know that the name and number refer to
different persons, it may rely on the number as the proper
identification of the beneficiary of the order. The beneficiary's
bank need not
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determine whether the name and number refer to the same person.
(2) If the beneficiary's bank pays the person identified by name
or knows that the name and number identify different persons, no
person has rights as beneficiary except the person paid by the
beneficiary's bank if that person was entitled to receive payment
from the originator of the funds transfer. If no person has rights
as beneficiary, acceptance of the order cannot occur.
(c) If (i) a payment order described in subsection (b) is
accepted, (ii) the originator's payment order described the
beneficiary inconsistently by name and number, and (iii) the
beneficiary's bank pays the person identified by number as permitted
by subsection (b)(1), the following rules apply:
(1) If the originator is a bank, the originator is obliged to
pay its order.
(2) If the originator is not a bank and proves that the person
identified by number was not entitled to receive payment from the
originator, the originator is not obliged to pay its order unless
the originator's bank proves that the originator, before acceptance
of the originator's order, had notice that payment of a payment
order issued by the originator might be made by the beneficiary's
bank on the basis of an identifying or bank account number even if
it identifies a person different from the named beneficiary. Proof
of notice may be made by any admissible evidence. The originator's
bank satisfies the burden of proof if it proves that the originator,
before the payment order was accepted, signed a writing stating the
information to which the notice relates.
(d) In a case governed by subsection (b)(1), if the
beneficiary's bank rightfully pays the person identified by number
and that person was not entitled to receive payment from the
originator, the amount paid may be recovered from that person to the
extent allowed by the law governing mistake and restitution as
follows:
(1) If the originator is obliged to pay its payment order as
stated in subsection (c), the originator has the right to recover.
(2) If the originator is not a bank and is not obliged to pay
its payment order, the originator's bank has the right to recover.
Section 4A-208. Misdescription of Intermediary Bank or Beneficiary's
Bank
(a) This subsection applies to a payment order identifying an
intermediary bank or the beneficiary's bank only by an identifying
number.
(1) The receiving bank may rely on the number as the proper
identification of the intermediary or beneficiary's bank and need
not determine whether the number identifies a bank.
(2) The sender is obliged to compensate the receiving bank for
any loss and expenses incurred by the receiving bank as a result of
its reliance on the number in executing or attempting to execute the
order.
(b) This subsection applies to a payment order identifying an
intermediary bank or the beneficiary's bank both by name and an
identifying number if the name and number identify different
persons.
(1) If the sender is a bank, the receiving bank may rely on the
number as the proper identification of the intermediary or
beneficiary's bank if the receiving bank, when it executes the
sender's order, does not know that the name and number identify
different persons. The receiving bank need not determine whether the
name and number refer to the same person or whether the number
refers to a bank. The sender is obliged to compensate the receiving
bank for any loss and expenses incurred by the receiving bank as a
result of its reliance on the number in executing or attempting to
execute the order.
(2) If the sender is not a bank and the receiving bank proves
that the sender, before the payment order was accepted, had notice
that the receiving bank might rely on the number as the proper
identification of the intermediary or beneficiary's bank even if it
identifies a person different from the bank identified by name, the
rights and obligations of the sender and the receiving bank are
governed by subsection (b)(1), as though the sender were a bank.
Proof of notice may be made by any admissible evidence. The
receiving bank satisfies the burden of proof if it proves that the
sender, before the payment order was accepted, signed a writing
stating the information to which the notice relates.
(3) Regardless of whether the sender is a bank, the receiving
bank may rely on the name as the proper identification of the
intermediary or beneficiary's bank if the receiving bank, at the
time it executes the sender's order, does not know that the name and
number identify different persons. The receiving bank need not
determine whether the name and number refer to the same person.
(4) If the receiving bank knows that the name and number
identify different persons, reliance on either the name or the
number in executing the sender's payment order is a breach of the
obligation stated in section 4A-302(a)(1).
Section 4A-209. Acceptance of Payment Order
(a) Subject to subsection (d), a receiving bank other than the
beneficiary's bank accepts a payment order when it executes the
order.
(b) Subject to subsections (c) and (d), a beneficiary's bank
accepts a payment order at the earliest of the following times:
(1) When the bank (i) pays the beneficiary as stated in section
4A-405(a) or 4A-405(b), or (ii) notifies the beneficiary of receipt
of the order or that the account of the beneficiary has been
credited with respect to the order unless the notice indicates that
the bank is rejecting the order or that funds with respect to the
order may not be withdrawn or used until receipt of payment from the
sender of the order;
(2) When the bank receives payment of the entire amount of the
sender's order pursuant to section 4A-403(a)(1) or 4A-403(a)(2); or
(3) The opening of the next funds-transfer business day of the
bank following the payment date of the order if, at that time, the
amount of the sender's order is fully covered by a withdrawable
credit balance in an authorized account of the sender or the bank
has otherwise received full payment from the sender, unless the
order was rejected before that time or is rejected within (i) one
hour after that time, or (ii) one hour after the opening of the next
business day of the sender following the payment date if that time
is later. If notice of rejection is received by the sender after the
payment date and the authorized account of the sender does not bear
interest, the bank is obliged to pay interest to the sender on the
amount of the order for the number of days elapsing after the
payment date to the day the sender receives notice or learns that
the order was not accepted, counting that day as an elapsed day. If
the withdrawable credit balance during that period falls below the
amount of the order, the amount of interest payable is reduced
accordingly.
(c) Acceptance of a payment order cannot occur before the order
is received by the receiving bank. Acceptance does not occur under
subsection (b)(2) or (b)(3) if the beneficiary of the payment order
does not have an account with the receiving bank, the account has
been closed, or the receiving bank is not permitted by law to
receive credits for the beneficiary's account.
(d) A payment order issued to the originator's bank cannot be
accepted until the payment date if the bank is the beneficiary's
bank, or the execution date if the bank is not the beneficiary's
bank. If the originator's bank executes the originator's payment
order before the execution date or pays the beneficiary of the
originator's payment order before the payment date and the payment
order is subsequently canceled pursuant to section 4A-211(b), the
bank may recover from the beneficiary any payment received to the
extent allowed by the law governing mistake and restitution.
Section 4A-210. Rejection of Payment Order
(a) A payment order is rejected by the receiving bank by a
notice of rejection transmitted to the sender orally,
electronically, or in writing. A notice of rejection need not use
any particular words and is sufficient if it indicates that the
receiving bank is rejecting the order or will not execute or pay the
order. Rejection is effective when the notice is given if
transmission is by a means that is reasonable in the circumstances.
If notice of rejection is given by a means that is not reasonable,
rejection is effective when the notice is received. If an agreement
of the sender and receiving bank establishes the means to be used to
reject a payment order, (i) any means complying with the agreement
is reasonable and (ii) any means not complying is not reasonable
unless no significant delay in receipt of the notice resulted from
the use of the noncomplying means.
(b) This subsection applies if a receiving bank other than the
beneficiary's bank fails to execute a payment order despite the
existence on the execution date of a withdrawable credit balance in
an authorized account of the sender sufficient to cover the order.
If the sender does not receive notice of rejection of the order on
the execution date and the authorized account of the sender does not
bear interest, the bank is obliged to pay interest to the sender on
the amount of the order for the number of days elapsing after the
execution date to the earlier of the day the order is canceled
pursuant to section 4A-211(d) or the day the sender receives
[[Page 31398]]
notice or learns that the order was not executed, counting the final
day of the period as an elapsed day. If the withdrawable credit
balance during that period falls below the amount of the order, the
amount of interest is reduced accordingly.
(c) If a receiving bank suspends payments, all unaccepted
payment orders issued to it are deemed rejected at the time the bank
suspends payments.
(d) Acceptance of a payment order precludes a later rejection of
the order. Rejection of a payment order precludes a later acceptance
of the order.
Section 4A-211. Cancellation and Amendment of Payment Order
(a) A communication of the sender of a payment order canceling
or amending the order may be transmitted to the receiving bank
orally, electronically, or in writing. If a security procedure is in
effect between the sender and the receiving bank, the communication
is not effective to cancel or amend the order unless the
communication is verified pursuant to the security procedure or the
bank agrees to the cancellation or amendment.
(b) Subject to subsection (a), a communication by the sender
canceling or amending a payment order is effective to cancel or
amend the order if notice of the communication is received at a time
and in a manner affording the receiving bank a reasonable
opportunity to act on the communication before the bank accepts the
payment order.
(c) After a payment order has been accepted, cancellation or
amendment of the order is not effective unless the receiving bank
agrees or a funds-transfer system rule allows cancellation or
amendment without agreement of the bank.
(1) With respect to a payment order accepted by a receiving bank
other than the beneficiary's bank, cancellation or amendment is not
effective unless a conforming cancellation or amendment of the
payment order issued by the receiving bank is also made.
(2) With respect to a payment order accepted by the
beneficiary's bank, cancellation or amendment is not effective
unless the order was issued in execution of an unauthorized payment
order, or because of a mistake by a sender in the funds transfer
which resulted in the issuance of a payment order (i) that is a
duplicate of a payment order previously issued by the sender, (ii)
that orders payment to a beneficiary not entitled to receive payment
from the originator, or (iii) that orders payment in an amount
greater than the amount the beneficiary was entitled to receive from
the originator. If the payment order is canceled or amended, the
beneficiary's bank is entitled to recover from the beneficiary any
amount paid to the beneficiary to the extent allowed by the law
governing mistake and restitution.
(d) An unaccepted payment order is canceled by operation of law
at the close of the fifth funds-transfer business day of the
receiving bank after the execution date or payment date of the
order.
(e) A canceled payment order cannot be accepted. If an accepted
payment order is canceled, the acceptance is nullified and no person
has any right or obligation based on the acceptance. Amendment of a
payment order is deemed to be cancellation of the original order at
the time of amendment and issue of a new payment order in the
amended form at the same time.
(f) Unless otherwise provided in an agreement of the parties or
in a funds-transfer system rule, if the receiving bank, after
accepting a payment order, agrees to cancellation or amendment of
the order by the sender or is bound by a funds-transfer system rule
allowing cancellation or amendment without the bank's agreement, the
sender, whether or not cancellation or amendment is effective, is
liable to the bank for any loss and expenses, including reasonable
attorney's fees, incurred by the bank as a result of the
cancellation or amendment or attempted cancellation or amendment.
(g) A payment order is not revoked by the death or legal
incapacity of the sender unless the receiving bank knows of the
death or of an adjudication of incapacity by a court of competent
jurisdiction and has reasonable opportunity to act before acceptance
of the order.
(h) A funds-transfer system rule is not effective to the extent
it conflicts with subsection (c)(2) of this section.
Section 4A-212. Liability and Duty of Receiving Bank Regarding
Unaccepted Payment Order
If a receiving bank fails to accept a payment order that it is
obliged by express agreement to accept, the bank is liable for
breach of the agreement to the extent provided in the agreement or
in this Article, but does not otherwise have any duty to accept a
payment order or, before acceptance, to take any action, or refrain
from taking action, with respect to the order except as provided in
this Article or by express agreement. Liability based on acceptance
arises only when acceptance occurs as stated in section 4A-209, and
liability is limited to that provided in this Article. A receiving
bank is not the agent of the sender or beneficiary of the payment
order it accepts, or of any other party to the funds transfer, and
the bank owes no duty to any party to the funds transfer except as
provided in this Article or by express agreement.
Part 3--Execution of Sender's Payment Order by Receiving Bank
Section 4A-301. Execution and Execution Date
(a) A payment order is ``executed'' by the receiving bank when
it issues a payment order intended to carry out the payment order
received by the bank. A payment order received by the beneficiary's
bank can be accepted but cannot be executed.
(b) Execution date of a payment order means the day on which the
receiving bank may properly issue a payment order in execution of
the sender's order. The execution date may be determined by
instruction of the sender but cannot be earlier than the day the
order is received and, unless otherwise determined, is the day the
order is received. If the sender's instruction states a payment
date, the execution date is the payment date or an earlier date on
which execution is reasonably necessary to allow payment to the
beneficiary on the payment date.
Section 4A-302. Obligations of Receiving Bank in Execution of Payment
Order
(a) Except as provided in subsections (b) through (d), if the
receiving bank accepts a payment order pursuant to section 4A-
209(a), the bank has the following obligations in executing the
order:
(1) The receiving bank is obliged to issue, on the execution
date, a payment order complying with the sender's order and to
follow the sender's instructions concerning (i) any intermediary
bank or funds-transfer system to be used in carrying out the funds
transfer, or (ii) the means by which payment orders are to be
transmitted in the funds transfer. If the originator's bank issues a
payment order to an intermediary bank, the originator's bank is
obliged to instruct the intermediary bank according to the
instruction of the originator. An intermediary bank in the funds
transfer is similarly bound by an instruction given to it by the
sender of the payment order it accepts.
(2) If the sender's instruction states that the funds transfer
is to be carried out telephonically or by wire transfer or otherwise
indicates that the funds transfer is to be carried out by the most
expeditious means, the receiving bank is obliged to transmit its
payment order by the most expeditious available means, and to
instruct any intermediary bank accordingly. If a sender's
instruction states a payment date, the receiving bank is obliged to
transmit its payment order at a time and by means reasonably
necessary to allow payment to the beneficiary on the payment date or
as soon thereafter as is feasible.
(b) Unless otherwise instructed, a receiving bank executing a
payment order may (i) use any funds-transfer system if use of that
system is reasonable in the circumstances, and (ii) issue a payment
order to the beneficiary's bank or to an intermediary bank through
which a payment order conforming to the sender's order can
expeditiously be issued to the beneficiary's bank if the receiving
bank exercises ordinary care in the selection of the intermediary
bank. A receiving bank is not required to follow an instruction of
the sender designating a funds-transfer system to be used in
carrying out the funds transfer if the receiving bank, in good
faith, determines that it is not feasible to follow the instruction
or that following the instruction would unduly delay completion of
the funds transfer.
(c) Unless subsection (a)(2) applies or the receiving bank is
otherwise instructed, the bank may execute a payment order by
transmitting its payment order by first class mail or by any means
reasonable in the circumstances. If the receiving bank is instructed
to execute the sender's order by transmitting its payment order by
the means stated or by any means as expeditious as the means stated.
(d) Unless instructed by the sender, (i) the receiving bank may
not obtain payment of its charges for services and expenses in
connection with the execution of the sender's order by issuing a
payment order in an
[[Page 31399]]
amount equal to the amount of the sender's order less the amount of
the charges, and (ii) may not instruct a subsequent receiving bank
to obtain payment of its charges in the same manner.
Section 4A-303. Erroneous Execution of Payment Order
(a) A receiving bank that (i) executes the payment order of the
sender by issuing a payment order in an amount greater than the
amount of the sender's order, or (ii) issues a payment order in
execution of the sender's order and then issues a duplicate order,
is entitled to payment of the amount of the sender's order under
section 4A-402(c) if that subsection is otherwise satisfied. The
bank is entitled to recover from the beneficiary of the erroneous
order the excess payment received to the extent allowed by the law
governing mistake and restitution.
(b) A receiving bank that executes the payment order of the
sender by issuing a payment order in an amount less than the amount
of the sender's order is entitled to payment of the amount of the
sender's order under section 4A-402(c) if (i) that subsection is
otherwise satisfied and (ii) the bank corrects its mistake by
issuing an additional payment order for the benefit of the
beneficiary of the sender's order. If the error is not corrected,
the issuer of the erroneous order is entitled to receive or retain
payment from the sender of the order it accepted only to the extent
of the amount of the erroneous order. This subsection does not apply
if the receiving bank executes the sender's payment order by issuing
a payment order in an amount less than the amount of the sender's
order for the purpose of obtaining payment of its charges for
services and expenses pursuant to instruction of the sender.
(c) If a receiving bank executes the payment order of the sender
by issuing a payment order to a beneficiary different from the
beneficiary of the sender's order and the funds transfer is
completed on the basis of that error, the sender of the payment
order that was erroneously executed and all previous senders in the
funds transfer are not obliged to pay the payment orders they
issued. The issuer of the erroneous order is entitled to recover
from the beneficiary of the order the payment received to the extent
allowed by the law governing mistake and restitution.
Section 4A-304. Duty of Sender To Report Erroneously Executed Payment
Order
If the sender of a payment order that is erroneously executed as
stated in section 4A-303 receives notification from the receiving
bank that the order was executed or that the sender's account was
debited with respect to the order, the sender has a duty to exercise
ordinary care to determine, on the basis of information available to
the sender, that the order was erroneously executed and to notify
the bank of the relevant facts within a reasonable time not
exceeding 90 days after the notification from the bank was received
by the sender. If the sender fails to perform that duty, the bank is
not obliged to pay interest on any amount refundable to the sender
under section 4A-402(d) for the period before the bank learns of the
execution error. The bank is not entitled to any recovery from the
sender on account of a failure by the sender to perform the duty
stated in this section.
Section 4A-305. Liability for Late or Improper Execution or Failure To
Execute Payment Order
(a) If a funds transfer is completed but execution of a payment
order by the receiving bank in breach of section 4A-302 results in
delay in payment to the beneficiary, the bank is obliged to pay
interest to either the originator or the beneficiary of the funds
transfer for the period of delay caused by the improper execution.
Except as provided in subsection (c), additional damages are not
recoverable.
(b) If execution of a payment order by a receiving bank in
breach of section 4A-302 results in (i) noncompletion of the funds
transfer, (ii) failure to use an intermediary bank designated by the
originator, or (iii) issuance of a payment order that does not
comply with the terms of the payment order of the originator, the
bank is liable to the originator for its expenses in the funds
transfer and for incidental expenses and interest losses, to the
extent not covered by subsection (a), resulting from the improper
execution. Except as provided in subsection (c), additional damages
are not recoverable.
(c) In addition to the amounts payable under subsections (a) and
(b), dama
[…truncated; see source link]Indexed from Federal Register on June 11, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.