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12 U.S.C. § 5005 — Indemnity
Federal law — U.S. Code and appendices · legal_authorities
**(a) Indemnity** A reconverting bank and each bank that subsequently transfers, presents, or returns a substitute check in any electronic or paper form, and receives consideration for such transfer, presentment, or return shall indemnify the transferee, any subsequent collecting or returning bank, the depositary bank, the drawee, the drawer, the payee, the depositor, and any endorser, up to the amount described in subsections (b) and (c), as applicable, to the extent of any loss incurred by any recipient of a substitute check if that loss occurred due to the receipt of a substitute check instead of the original check.
**(b) Indemnity amount**
(1) **Amount in event of breach of warranty** — The amount of the indemnity under subsection (a) shall be the amount of any loss (including costs and reasonable attorney’s fees and other expenses of representation) proximately caused by a breach of a warranty provided under [section 5004 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section5004&num=0&edition=prelim).
(2) **Amount in absence of breach of warranty** — In the absence of a breach of a warranty provided under [section 5004 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section5004&num=0&edition=prelim), the amount of the indemnity under subsection (a) shall be the sum of—
(A) the amount of any loss, up to the amount of the substitute check; and
(B) interest and expenses (including costs and reasonable attorney’s fees and other expenses of representation).
**(c) Comparative negligence**
(1) **In general** — If a loss described in subsection (a) results in whole or in part from the negligence or failure to act in good faith on the part of an indemnified party, then that party’s indemnif
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Stable record: federal_law:legal_authorities:record_usc_c16988675b9ea59e41b46bba
Source file: Laws/federal/codes/united-states-code/title-12/section-5005-indemnity--28b1232997.md
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Source location: Title 12, Chapter 50, § 5005; chapter-050-check-truncation.md
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**(a) Indemnity** A reconverting bank and each bank that subsequently transfers, presents, or returns a substitute check in any electronic or paper form, and receives consideration for such transfer, presentment, or return shall indemnify the transferee, any subsequent collecting or returning bank, the depositary bank, the drawee, the drawer, the payee, the depositor, and any endorser, up to the amount described in subsections (b) and (c), as applicable, to the extent of any loss incurred by any recipient of a substitute check if that loss occurred due to the receipt of a substitute check instead of the original check.
**(b) Indemnity amount**
(1) **Amount in event of breach of warranty** — The amount of the indemnity under subsection (a) shall be the amount of any loss (including costs and reasonable attorney’s fees and other expenses of representation) proximately caused by a breach of a warranty provided under [section 5004 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section5004&num=0&edition=prelim).
(2) **Amount in absence of breach of warranty** — In the absence of a breach of a warranty provided under [section 5004 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section5004&num=0&edition=prelim), the amount of the indemnity under subsection (a) shall be the sum of—
(A) the amount of any loss, up to the amount of the substitute check; and
(B) interest and expenses (including costs and reasonable attorney’s fees and other expenses of representation).
**(c) Comparative negligence**
(1) **In general** — If a loss described in subsection (a) results in whole or in part from the negligence or failure to act in good faith on the part of an indemnified party, then that party’s indemnification under this section shall be reduced in proportion to the amount of negligence or bad faith attributable to that party.
(2) **Rule of construction** — Nothing in this subsection reduces the rights of a consumer or any other person under the Uniform Commercial Code or other applicable provision of Federal or State law.
**(d) Effect of producing original check or copy**
(1) **In general** — If the indemnifying bank produces the original check or a copy of the original check (including an image or a substitute check) that accurately represents all of the information on the front and back of the original check (as of the time the original check was truncated) or is otherwise sufficient to determine whether or not a claim is valid, the indemnifying bank shall—
(A) be liable under this section only for losses covered by the indemnity that are incurred up to the time that the original check or copy is provided to the indemnified party; and
(B) have a right to the return of any funds it has paid under the indemnity in excess of those losses.
(2) **Coordination of indemnity with implied warranty** — The production of the original check, a substitute check, or a copy under paragraph (1) by an indemnifying bank shall not absolve the bank from any liability on a warranty established under this chapter or any other provision of law.
**(e) Subrogation of rights**
(1) **In general** — Each indemnifying bank shall be subrogated to the rights of any indemnified party to the extent of the indemnity.
(2) **Recovery under warranty** — A bank that indemnifies a party under this section may attempt to recover from another party based on a warranty or other claim.
(3) **Duty of indemnified party** — Each indemnified party shall have a duty to comply with all reasonable requests for assistance from an indemnifying bank in connection with any claim the indemnifying bank brings against a warrantor or other party related to a check that forms the basis for the indemnification.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Findings** The Congress finds as follows:
(1) In the Expedited Funds Availability Act [[12 U.S.C. 4001](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section4001&num=0&edition=prelim) et seq.], enacted on August 10, 1987, the Congress directed the Board of Governors of the Federal Reserve System to consider establishing regulations requiring Federal reserve banks and depository institutions to provide for check truncation, in order to improve the check processing system.
(2) In that same Act, the Congress—
(A) provided the Board of Governors of the Federal Reserve System with full authority to regulate all aspects of the payment system, including the receipt, payment, collection, and clearing of checks, and related functions of the payment system pertaining to checks; and
(B) directed that the exercise of such authority by the Board superseded any State law, including the Uniform Commercial Code, as in effect in any State.
(3) Check truncation is no less desirable in 2003 for both financial service customers and the financial services industry, to reduce costs, improve efficiency in check collections, and expedite funds availability for customers than it was over 15 years ago when Congress first directed the Board to consider establishing such a process.
**(b) Purposes** The purposes of this chapter are as follows:
(1) To facilitate check truncation by authorizing substitute checks.
(2) To foster innovation in the check collection system without mandating receipt of checks in electronic form.
(3) To improve the overall efficiency of the Nation’s payments system.
Source: Supplied U.S. Code snapshot — release unconfirmed · 12 U.S.C. § 5001
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Federal law — U.S. Code and appendices · legal_authorities
A bank that transfers, presents, or returns a substitute check and receives consideration for the check warrants, as a matter of law, to the transferee, any subsequent collecting or returning bank, the depositary bank, the drawee, the drawer, the payee, the depositor, and any endorser (regardless of whether the warrantee receives the substitute check or another paper or electronic form of the substitute check or original check) that—
(1) the substitute check meets all the requirements for legal equivalence under [section 5003(b) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section5003/b&num=0&edition=prelim); and
(2) no depositary bank, drawee, drawer, or endorser will receive presentment or return of the substitute check, the original check, or a copy or other paper or electronic version of the substitute check or original check such that the bank, drawee, drawer, or endorser will be asked to make a payment based on a check that the bank, drawee, drawer, or endorser has already paid.
Source: Supplied U.S. Code snapshot — release unconfirmed · 12 U.S.C. § 5004
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Federal law — U.S. Code and appendices · legal_authorities
For purposes of this chapter, the following definitions shall apply:
(1) **Account** — The term “account” means a deposit account at a bank.
(2) **Bank** — The term “bank” means any person that is located in a State and engaged in the business of banking and includes—
(A) any depository institution (as defined in [section 461(b)(1)(A) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section461/b/1/A&num=0&edition=prelim));
(B) any Federal reserve bank;
(C) any Federal home loan bank; or
(D) to the extent it acts as a payor—
(i) the Treasury of the United States;
(ii) the United States Postal Service;
(iii) a State government; or
(iv) a unit of general local government (as defined in [section 4001(24) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section4001/24&num=0&edition=prelim)).
(3) **Banking terms**
(A) *Collecting bank* — The term “collecting bank” means any bank handling a check for collection except the paying bank.
(B) *Depositary bank* — The term “depositary bank” means—
(i) the first bank to which a check is transferred, even if such bank is also the paying bank or the payee; or
(ii) a bank to which a check is transferred for deposit in an account at such bank, even if the check is physically received and indorsed first by another bank.
(C) *Paying bank* — The term “paying bank” means—
(i) the bank by which a check is payable, unless the check is payable at or through another bank and is sent to the other bank for payment or collection; or
(ii) the bank at or through which a check is payable and to which the check is sent for payment or collection.
(D) *Returning bank*
(i) *In general* — The term “returning bank” me
Source: Supplied U.S. Code snapshot — release unconfirmed · 12 U.S.C. § 5002
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Liability**
(1) **In general** — Except as provided in [section 5005 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section5005&num=0&edition=prelim), any person who, in connection with a substitute check, breaches any warranty under this chapter or fails to comply with any requirement imposed by, or regulation prescribed pursuant to, this chapter with respect to any other person shall be liable to such person in an amount equal to the sum of—
(A) the lesser of—
(i) the amount of the loss suffered by the other person as a result of the breach or failure; or
(ii) the amount of the substitute check; and
(B) interest and expenses (including costs and reasonable attorney’s fees and other expenses of representation) related to the substitute check.
(2) **Offset of recredits** — The amount of damages any person receives under paragraph (1), if any, shall be reduced by the amount, if any, that the claimant receives and retains as a recredit under section 5006 or 5007 of this title.
**(b) Comparative negligence**
(1) **In general** — If a person incurs damages that resulted in whole or in part from the negligence or failure of that person to act in good faith, then the amount of any liability due to that person under subsection (a) shall be reduced in proportion to the amount of negligence or bad faith attributable to that person.
(2) **Rule of construction** — Nothing in this subsection reduces the rights of a consumer or any other person under the Uniform Commercial Code or other applicable provision of Federal or State law.
Source: Supplied U.S. Code snapshot — release unconfirmed · 12 U.S.C. § 5009
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Federal law — U.S. Code and appendices · legal_authorities
Page 1777
TITLE 12—BANKS AND BANKING
§ 5005
(Pub. L. 108–100, § 3, Oct. 28, 2003, 117 Stat. 1178.)
Editorial Notes
REFERENCES IN TEXT
This chapter, referred to in text, was in the original
‘‘this Act’’, meaning Pub. L. 108–100, Oct. 28, 2003, 117
Stat. 1177, which is classified generally to this chapter.
For complete classification of this Act to the Code, see
Short Title note set out under section 5001 of this title
and Tables.
Statutory Notes and Related Subsidiaries
EFFECTIVE DATE
Section effective at the end of the 12-month period
beginning on Oct. 28, 2003, see section 20 of Pub. L.
108–100, set out as a note under section 5001 of this title.
§ 5003. General provisions governing substitute
checks
(a) No agreement required
A person may deposit, present, or send for col-
lection or return a substitute check without an
agreement with the recipient, so long as a bank
has made the warranties in section 5004 of this
title with respect to such substitute check.
(b) Legal equivalence
A substitute check shall be the legal equiva-
lent of the original check for all purposes, in-
cluding any provision of any Federal or State
law, and for all persons if the substitute check—
(1) accurately represents all of the informa-
tion on the front and back of the original
check as of the time the original check was
truncated; and
(2) bears the legend: ‘‘This is a legal copy of
your check. You can use it the same way you
would use the original check.’’
(c) Endorsements
A bank shall ensure that the substitute check
for which the bank is the reconverting bank
bears all endorsements applied by parties that
previously handled the check (whether in elec-
tronic form or in the form of the original paper
check or a substitute check) for forward collec-
tion or ret
Source: Supplied 2024 U.S. Code historical extraction · 12 U.S.C. § 5005
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