12 U.S.C. § 5005 — Indemnity

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 return. (d) Identification of reconverting bank A bank shall identify itself as a reconverting bank on any substitute check for which the bank is a reconverting bank so as to preserve any previous reconverting bank identifications in conformance with generally applicable indus- try standards. (e) Applicable law A substitute check that is the legal equivalent of the original check under subsection (b) shall be subject to any provision, including any provi- sion relating to the protection of customers, of part 229 of title 12 of the Code of Federal Regula- tions, the Uniform Commercial Code, and any other applicable Federal or State law as if such substitute check were the original check, to the extent such provision of law is not inconsistent with this chapter. (Pub. L. 108–100, § 4, Oct. 28, 2003, 117 Stat. 1180.) Editorial Notes REFERENCES IN TEXT This chapter, referred to in subsec. (e), 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. § 5004. Substitute check warranties 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 return- ing bank, the depositary bank, the drawee, the drawer, the payee, the depositor, and any en- dorser (regardless of whether the warrantee re- ceives the substitute check or another paper or electronic form of the substitute check or origi- nal check) that— (1) the substitute check meets all the re- quirements for legal equivalence under section 5003(b) of this title; 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 en- dorser has already paid. (Pub. L. 108–100, § 5, Oct. 28, 2003, 117 Stat. 1181.) 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. § 5005. Indemnity (a) Indemnity A reconverting bank and each bank that sub- sequently transfers, presents, or returns a sub- stitute check in any electronic or paper form, and receives consideration for such transfer, presentment, or return shall indemnify the transferee, any subsequent collecting or return- ing bank, the depositary bank, the drawee, the drawer, the payee, the depositor, and any en- dorser, up to the amount described in sub- sections (b) and (c), as applicable, to the extent of any loss incurred by any recipient of a sub- stitute check if that loss occurred due to the re- ceipt of a substitute check instead of the origi- nal check. (b) Indemnity amount (1) Amount in event of breach of warranty The amount of the indemnity under sub- section (a) shall be the amount of any loss (in- cluding costs and reasonable attorney’s fees and other expenses of representation) proxi- mately caused by a breach of a warranty pro- vided under section 5004 of this title. (2) Amount in absence of breach of warranty In the absence of a breach of a warranty pro- vided under section 5004 of this title, the Page 1778 TITLE 12—BANKS AND BANKING § 5006 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 ex- penses 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 indem- nified party, then that party’s indemnification under this section shall be reduced in propor- tion 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 origi- nal check or a copy of the original check (in- cluding 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 wheth- er 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 in- curred 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 sub- stitute check, or a copy under paragraph (1) by an indemnifying bank shall not absolve the bank from any liability on a warranty estab- lished under this chapter or any other provi- sion 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 assist- ance 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 indem- nification. (Pub. L. 108–100, § 6, Oct. 28, 2003, 117 Stat. 1181.) Editorial Notes REFERENCES IN TEXT This chapter, referred to in subsec. (d)(2), 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. § 5006. Expedited recredit for consumers (a) Recredit claims (1) In general A consumer may make a claim for expedited recredit from the bank that holds the account of the consumer with respect to a substitute check, if the consumer asserts in good faith that— (A) the bank charged the consumer’s ac- count for a substitute check that was pro- vided to the consumer; (B) either— (i) the check was not properly charged to the consumer’s account; or (ii) the consumer has a warranty claim with respect to such substitute check; (C) the consumer suffered a resulting loss; and (D) the production of the original check or a better copy of the original check is nec- essary to determine the validity of any claim described in subparagraph (B). (2) 40-day period Any claim under paragraph (1) with respect to a consumer account may be submitted by a consumer before the end of the 40-day period beginning on the later of— (A) the date on which the financial institu- tion mails or delivers, by a means agreed to by the consumer, the periodic statement of account for such account which contains in- formation concerning the transaction giving rise to the claim; or (B) the date on which the substitute check is made available to the consumer. (3) Extension under extenuating circumstances If the ability of the consumer to submit the claim within the 40-day period under para- graph (2) is delayed due to extenuating cir- cumstances, including extended travel or the illness of the consumer, the 40-day period shall be extended by a reasonable amount of time. (b) Procedures for claims (1) In general To make a claim for an expedited recredit under subsection (a) with respect to a sub- stitute check, the consumer shall provide to the bank that holds the account of such con- sumer—