"Check 21” Consumer Expedited Recredit Rights [Section 229.54]

Written By: Lewis Sheffield

The consumer expedited recredit provision only applies to “consumers” (not business customers) who have received a substitute check and have had a transaction involving a substitute check charged to their account. Because the Check 21 Act defines “account” as a deposit account, the expedited recredit procedures only apply to substitute checks charged to a consumer deposit account. Credit card checks, checks a consumer draws on a home equity line of credit, or checks a consumer draws on a brokerage clearing account would, therefore, generally not trigger the expedited recredit procedures. Such checks could only trigger the expedited recredit procedures if a consumer had deposited such a check into his or her deposit account, the check were returned unpaid, and the bank provided the returned check to the consumer depositor in the form of a substitute check. Note: The UCC provisions that prohibit a bank from making unauthorized charges to the consumer’s account still apply regardless of whether the expedited recredit procedure applies.

To use the expedited recredit procedure, the consumer must be able to assert in good faith that the:

• Consumer’s account was charged for a substitute check,
• Consumer’s account was improperly charged or the consumer has a warranty claim related to the substitute check,
• Consumer suffered a loss, and
• Consumer needs the original check or a “sufficient copy” to determine the validity of the claim.

A “sufficient copy” is defined in Section 229.2 (bbb) as “a copy of an original 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.”

How Does a Consumer File an Expedited Recredit Claim?

A consumer must file an expedited recredit claim so that the bank receives it within 40 calendar days from the later of the date that the bank mailed, or delivered by a means agreed to by the consumer, (1) the account statement showing the transaction that gave rise to the claim or (2) the substitute check that gave rise to the claim. (The bank is required to extend the time for making a claim in extenuating circumstances. Additionally, the bank also has the latitude under the final rules to extend the 40-day time period for consumer action, so that it can parallel the 60-day claim period under Regulation E involving claims for disputed electronic fund transfers).

To make a claim for expedited recredit, a consumer must provide:

• A description of why the consumer believes the account was improperly charged or the nature of the consumer’s warranty claim,
• A statement that a loss occurred, including an estimate of the amount,
• The reason why producing the original check or a sufficient copy is necessary to determine the validity of the charge, and
• Sufficient information to identify the substitute check and to investigate the claim.

Other Requirements

The bank has a duty to inform the consumer whether his or her complaint is incomplete (and thus is not yet a “claim” for purposes of the expedited recredit procedure) and must identify what information is missing. A bank’s “clock” for responding does not begin to tick until the consumer submits a complete claim.

If a bank requires a written claim and the consumer attempts to submit a claim orally, the bank must, at the time of the attempted oral claim submission, inform the consumer of the written claim submission requirement. The consumer awareness disclosure that the bank distributes also should inform the consumer of the written claim requirement.

If the bank requires the claim to be in writing, the consumer must submit the written claim so that the bank receives it either (1) within 10 business days of the date of notification of the written claim requirement, or (2) within the “basic” 40-calendar-day time period (discussed above) for filing a claim, whichever is later.

If an oral claim is made within the 40-day period and the consumer meets the 10-day written notification requirement, the consumer’s claim is timely even if the written claim is received after the “basic” 40-day period.

Bank Options for Responding to Consumer Claims

A bank that receives an expedited recredit claim must take one of the following actions:
(1) Approve the claim and provide a full recredit no later than the business day after making that determination. In this case, the bank must send a notice of recredit no later than the business day after the banking day on which the bank recredits the consumer’s account, (2) Deny the claim and demonstrate to the consumer why the claim is not valid. The bank must send a notice demonstrating that the consumer’s claim is not valid no later than the business day after the banking day on which it makes this determination, or if the bank has not taken an action described in (1) or (2) by the tenth business day after the banking day on which the bank received the claim, the bank must provisionally recredit a consumer’s account pending further investigation. The bank must provide notice of the provisional recredit no later than the business day after the banking day on which the bank recredits the consumer’s account.

If the bank provisionally recredits a consumer’s account pending further investigation, the bank is required to recredit the amount of the consumer’s loss, up to the amount of the substitute check or $2,500, whichever is less. The bank must also recredit interest on that amount if the consumer’s account is an interest-bearing account. The bank would recredit any remaining amount (plus applicable interest) on the 45th calendar day after receiving the claim, unless before that time the bank had already made a determination concerning either the validity or invalidity of the consumer’s claim.

If the bank later determines that the claim was not valid, the bank may reverse the recredit (notwithstanding whether the bank’s recredit to the consumer’s account was provided under (1) or (2) above). The bank must provide a notice of reversal of recredit no later than the business day after the banking day on which the bank makes the reversal.

The Federal Reserve Board has provided model notices in appendix C that banks may use in responding to consumer expedited recredit claims under §229.54(e). Unlike the model consumer awareness disclosure form C-5A, however, use of these model notices does not provide banks with a statutory safe harbor.

More information can be found here.

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