[Federal Register Volume 77, Number 71 (Thursday, April 12, 2012)]
[Rules and Regulations]
[Pages 21854-21861]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-8563]


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FEDERAL RESERVE SYSTEM

12 CFR Part 210

[Regulation J; Docket No. R-1434]
RIN 7100 AD 84


Collection of Checks and Other Items by Federal Reserve Banks and 
Funds Transfers Through Fedwire: Elimination of ``As-of Adjustments'' 
and Other Clarifications

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board is amending Regulation J (Collection of Checks and 
Other Items by Federal Reserve Banks and Funds Transfers through 
Fedwire). The final rule eliminates references to ``as-of adjustments'' 
consistent with the Board's final amendments to Regulation D to 
simplify reserves administration; clarifies that an institution's 
Administrative Reserve Bank is deemed to have accepted deposit of a 
check or other item even if the institution sends the item directly to 
another Federal Reserve Bank; further clarifies that Regulation J 
continues to apply to a Fedwire funds transfer even if the funds 
transfer also meets the definition of ``remittance transfer'' under the 
Electronic Fund Transfer Act; and makes other conforming revisions.

DATES: This final rule is effective July 12, 2012.

FOR FURTHER INFORMATION CONTACT: Kara Handzlik, Senior Attorney (202) 
452-

[[Page 21855]]

3852, Legal Division; Margaret Gillis DeBoer, Assistant Director (202) 
452-3139, or Heather Wiggins, Senior Financial Analyst (202) 452-3674, 
Division of Monetary Affairs; or Joseph Baressi, Project Leader, 
Division of Reserve Bank Operations and Payment Systems (202) 452-3959; 
for users of Telecommunications Device for the Deaf (TDD) only, contact 
(202) 263-4869; Board of Governors of the Federal Reserve System, 20th 
and C Streets, NW., Washington, DC 20551.

SUPPLEMENTARY INFORMATION: 

I. Background

    Subpart A of Regulation J governs the collection of checks and 
other items by the Federal Reserve Banks (Reserve Banks), including the 
types of checks or other items that may be sent to Reserve Banks, the 
order in which they are deemed to be handled, and the related 
warranties and indemnities. Subpart B of Regulation J sets forth the 
terms and conditions under which Reserve Banks receive and deliver 
payment orders from and to depository institutions over the Reserve 
Banks' Fedwire[supreg] Funds Service (Fedwire).
    On October 18, 2011, the Board proposed amendments to Regulation J, 
including the elimination of references throughout Regulation J to a 
Reserve Bank's use of ``as-of adjustments'' (76 FR 64259). The Board 
proposed these amendments, in part, to conform to proposed amendments 
to Regulation D (12 CFR part 204) to simplify reserves 
administration.\1\ The Board also proposed amendments to subpart A of 
Regulation J to clarify where a check or other item is deemed to be 
accepted when it is sent to a Reserve Bank. Specifically, the proposal 
clarified that when an institution sends a check or other item for 
collection to a Reserve Bank, the institution's Administrative Reserve 
Bank is deemed to have accepted deposit of the item even if the item 
was sent directly to another Reserve Bank. In addition, the Board 
proposed amendments to clarify that subpart B of Regulation J continues 
to apply to a Fedwire funds transfer even if that funds transfer also 
meets the definition of ``remittance transfer'' under the recently 
revised Electronic Fund Transfer Act (``EFTA''). After consideration of 
the comments received, the Board is adopting the amendments to 
Regulation J as proposed.
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    \1\ The proposed amendments to Regulation D were published in 
the Federal Register on October 18, 2011 (76 FR 64250). The Board 
proposed to discontinue the use of as-of adjustments for deposit 
report revisions and to replace all other as-of adjustments with 
direct compensation, create a common two-week maintenance period for 
all depository institutions, create a penalty-free band around 
reserve balance requirements in place of carryover and routine 
waivers, and eliminate the contractual clearing balance program.
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II. Request for Public Comment and Summary of Comments Received

    The Board requested public comment on its October 2011 proposal to 
amend Regulation J. The Board received a total of eight comments from 
six financial institution trade associations, one depository 
institution, and one association of depository institutions. Commenters 
generally expressed support for the proposed amendments, although some 
were concerned with various aspects of the proposal and provided 
support contingent on certain conditions. These comments are discussed 
in more detail below.

III. Analysis of Proposed Simplifications and Comments

Eliminate References to As-of Adjustments

    Regulation J defines ``as-of adjustment'' for purposes of subpart B 
of the regulation as ``a debit or credit, for reserve- or clearing-
balance maintenance purposes only, applied to the reserve or clearing 
balance of a bank that either sends a payment order to a Federal 
Reserve Bank, or that receives a payment order from a Federal Reserve 
Bank, in lieu of an interest charge or payment.'' \2\ Regulation J 
currently permits a Reserve Bank to use either an as-of adjustment or 
direct compensation (at the federal funds rate) to compensate for an 
error in transaction processing or other damages owed in connection 
with a Fedwire funds transfer. Regulation J further provides in subpart 
A that a Reserve Bank's operating circulars may include procedures for 
paying interest in the form of as-of adjustments in relation to the 
collection of checks and other items.
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    \2\ 12 CFR 210.26(b).
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    As noted above, the Board proposed to amend Regulation D to 
simplify the rules governing the administration of reserve 
requirements. The proposed Regulation D amendments included 
discontinuing as-of adjustments related to deposit report revisions and 
replacing all other as-of adjustments with direct compensation in the 
form of either a debit or credit applied to an account to offset the 
effect of an error. Consistent with its Regulation D proposal, the 
Board proposed to amend Regulation J Sec. Sec.  210.3(a), 210.26(b), 
and 210.32(b) (along with the corresponding commentary) to eliminate 
references to as-of adjustments. Under the Board's Regulation J 
proposal, a Reserve Bank would continue to be able to pay direct 
compensation to a depository institution based on the federal funds 
rate in accordance with Sec.  210.32(b), which incorporates by 
reference section 4A-506 of article 4A of the Uniform Commercial Code 
(UCC).\3\ The Board specifically requested comment on the following two 
items: whether use of the federal funds rate for the calculation of 
direct compensation is appropriate, and if not, the rate that the Board 
should use, and whether the Board should eliminate Sec.  210.32(b)(1) 
of Regulation J entirely, as the Reserve Banks could simply pay direct 
compensation based on the provisions of UCC section 4A-506, which is 
already incorporated into Regulation J.
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    \3\ Article 4A-506(b) states that if the amount of interest is 
not determined by an agreement or rule, the applicable federal funds 
rate would apply.
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    The Board received eight comments concerning the elimination of 
references to as-of adjustments. Commenters generally supported this 
amendment. One commenter requested that the debit or credit entry post 
directly to the account bearing the routing number of the original 
transaction and that the supporting documentation be forwarded directly 
to the depository institution holding that account. Two commenters 
conditioned their support of this change on Reserve Banks continuing to 
provide depository institutions with information on the error that 
occurred and the calculation of the compensation amount. With respect 
to compensation at the federal funds rate, one commenter stated that 
the federal funds rate should be used while another commenter stated 
that the rate for calculating the compensation amount should be at 
least equal to the federal funds rate. With respect to the elimination 
of Sec.  210.32(b)(1), one commenter recommended that the Board 
eliminate this section entirely and allow the Reserve Banks to pay 
direct compensation based on the provisions of UCC section 4A-506, 
which is already incorporated into Regulation J.
    The Board is adopting Sec. Sec.  210.3(a), 210.26(b), and 210.32(b) 
as proposed (along with the corresponding commentary). These final 
amendments correspond to the Board's adoption of final amendments to 
Regulation D to discontinue as-of adjustments related to deposit report 
revisions and to replace all other as-of adjustments with direct 
compensation. Under the final rules, the federal funds rate will be 
used for the calculation of direct compensation. The Board believes 
that the federal funds rate is the appropriate rate for direct 
compensation in order to ensure that a

[[Page 21856]]

depository institution does not gain or lose in its position as a 
result of accounting or administrative errors or delays in transaction 
processing by Reserve Banks. The Board believes it is prudent to retain 
Sec.  210.32(b)(1) to give appropriate context to the subsequent 
provision, Sec.  210.32(b)(2), which concerns the pass-through of 
compensation to the appropriate party. Under Sec.  210.32(b)(2), an 
institution that receives a compensation payment but is not the party 
entitled to compensation would continue to be required to pass the 
benefit of that payment through to the party entitled to compensation, 
computed as the value of the payment as if it had been passed through 
to the entitled party on the day the Reserve Bank effected payment to 
the institution. The Board anticipates that the Reserve Banks will make 
the appropriate information and documentation available to depository 
institutions as may be needed to permit institutions to reconcile 
accounts and allocate charges or payments. For example, information 
will be available that helps describe the calculation of direct 
compensation entries including the error amount, the start and end date 
of the error, and identification of the originating service area. The 
Board also anticipates that Reserve Banks will provide institutions 
with contact information for service areas processing direct 
compensation entries so that inquiries can be addressed.

Acceptance of Deposits of Items

    Section 210.4 of Regulation J governs the sending and handling of 
checks and other items sent to Reserve Banks. The Reserve Banks have 
long permitted institutions to send checks to a Reserve Bank other than 
the institution's Administrative Reserve Bank. These ``direct sends'' 
facilitate a more efficient check-collection process. Section 210.4 
currently specifies the identity and order of the parties that are 
deemed to handle a check or other item, whether it is deposited 
electronically or in paper form, that is sent to a Reserve Bank for 
purposes of determining the rights and liabilities of the parties under 
Regulation J, Regulation CC (12 CFR part 229), and the UCC. 
Specifically, Sec.  210.4 provides that, for an item sent to a Reserve 
Bank for collection, the following parties are deemed to have handled 
the item in the following order: (1) The initial sender; (2) the 
initial sender's Administrative Reserve Bank; \4\ (3) the Reserve Bank 
that receives the item from the initial sender (if different from the 
initial sender's Administrative Reserve Bank); and (4) another Reserve 
Bank, if any, that receives the item from a Reserve Bank.
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    \4\ An institution's Administrative Reserve Bank is the Reserve 
Bank in whose District the institution is located. 12 CFR 210.2(c), 
see section 204.3(g) of Regulation D, 12 CFR 204.3(g) (location of 
depository institutions).
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    The Board proposed to amend Sec.  210.4(b)(1)(ii) to clarify that, 
when an Administrative Reserve Bank is deemed to have ``handled'' a 
check sent directly to another Reserve Bank, such ``handling'' of an 
item includes accepting the item for deposit. Thus, for purposes of 
determining the rights and liabilities of parties that send and handle 
checks and other items sent to a Reserve Bank, the Administrative 
Reserve Bank is deemed to have accepted deposit of the item from the 
initial sender even if the sender sends the item directly to another 
Reserve Bank. The Board further proposed to clarify in Sec.  
210.4(b)(3) that, in addition to Regulation J, Regulation CC, and the 
UCC, the identity and order of the parties in Sec.  210.4(b) also 
determines the relationships and the rights and liabilities of the 
parties for purposes of sections 13(1) and 16(13) of the Federal 
Reserve Act, which govern deposits to Reserve Banks.\5\
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    \5\ 12 U.S.C. 342 and 360.
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    The Board received six comments supporting this clarification and 
no comments opposing the clarification. The Board is adopting this 
clarification as proposed.

Application of Regulation J to ``Remittance Transfers''

    As noted above, Fedwire funds transfers are governed by subpart B 
of Regulation J. More specifically, subpart B of Regulation J currently 
``governs a funds transfer that is sent through Fedwire * * * even 
though a portion of the funds transfer is governed by the Electronic 
Fund Transfer Act [EFTA], but the portion of such funds transfer that 
is governed by the [EFTA] is not governed by'' Regulation J.\6\ This 
provision is slightly different from (and supersedes) the scope of UCC 
Article 4A-108, which provides that Article 4A does not apply ``to a 
funds transfer, any part of which is governed by the [EFTA].'' Prior to 
the adoption of the recently enacted Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act), the exclusion from Regulation 
J and Article 4A of transactions governed by the EFTA did not create 
any gaps or overlap because the EFTA excluded from the definition of 
``electronic fund transfer'' wire transfers over systems that are not 
designed primarily for consumer transfers (such as Fedwire).\7\ The 
Dodd-Frank Act, however, added new section 919 to the EFTA, which 
defines ``remittance transfer'' to include an electronic transfer of 
funds requested by a U.S. consumer sender through a remittance transfer 
provider, whether or not the remittance transfer is also an electronic 
fund transfer as defined in the EFTA. Therefore, a Fedwire funds 
transfer could potentially be part of a remittance transfer under the 
new section 919 of the EFTA.\8\ Consequently, under Regulation J's 
current scope provision (Sec.  210.25(b)(3)), Fedwire funds transfers 
that meet the EFTA's definition of ``remittance transfer'' could be 
viewed as ``governed by'' the EFTA and therefore not governed by 
Regulation J.
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    \6\ 12 CFR 210.25(b)(3).
    \7\ 15 U.S.C. 1693a(6)(B).
    \8\ See the Consumer Financial Protection Bureau's final 
amendments to Regulation E (12 CFR part 1005) to implement section 
919 of the EFTA (77 FR 6194 (Feb. 7, 2012)).
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    To avoid a gap in coverage for Fedwire funds transfers, the Board 
proposed to amend Sec.  210.25 of Regulation J to clarify that 
Regulation J continues to apply to ``remittance transfers'' as defined 
by the EFTA, to the extent there is not an inconsistency between 
Regulation J and section 919 of the EFTA (in which case section 919 
would prevail). The proposed clarification was intended to ensure that 
the provisions of Regulation J, and therefore Article 4A of the UCC, 
apply to all Fedwire funds transfers, except to the extent that section 
919 of the EFTA and rules established thereunder apply. The proposal 
included clarifications in the commentary to Sec.  210.25 as well.
    Commenters generally supported this clarification; however, three 
commenters requested that the Board coordinate with the Consumer 
Financial Protection Bureau (CFPB) before finalizing this rule due to 
outstanding issues regarding the ``remittance transfer'' final rule. 
Another commenter supported the proposal but pointed out that although 
this amendment will clarify the application of Regulation J for Fedwire 
transactions, the clarification will not apply to non-Fedwire wire 
transfers governed by Article 4A.
    The Board is adopting the clarification to Regulation J as 
proposed. At the time the Board published the related proposal for this 
rulemaking, the CFPB had yet to finalize amendments to Regulation E to 
implement section 919 of the EFTA. The CFPB has since finalized this 
rulemaking.\9\ The CFPB's final rule includes a discussion on the

[[Page 21857]]

relationship between the EFTA and Article 4A of the UCC.\10\
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    \9\ 77 FR 6194 (February 7, 2012).
    \10\ Id. at 6211-6212.
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Conforming Revisions

    The Board is making non-substantive changes in Sec. Sec.  210.2, 
210.10, and 210.11 to conform terminology to the final amendments in 
Regulation D concerning the use of various reserve-related terms. 
Regulation J Sec.  210.2(a) currently defines the term ``account'' as 
an account with reserve or clearing balances on the books of a Federal 
Reserve Bank. Consistent with the Regulation D final rulemaking, the 
Board is amending Sec.  210.2(a) to refer simply to balances on the 
books of a Federal Reserve Bank. In addition, Regulation J Sec. Sec.  
210.10 and 210.11, which concern the availability of credit to 
depository institutions, currently refer to ``reserve.'' Section 
210.11(a), for example, states that a Reserve Bank shall provide credit 
of a noncash item when it receives payment in actually and finally 
collected funds and that the amount of such noncash item ``is counted 
as reserve for purposes'' of Regulation D. Consistent with the final 
amendments to Regulation D, the Board is amending Sec. Sec.  210.10(a) 
and 210.11(a), (b), and (c) by replacing the term ``reserve'' with 
``balance maintained to satisfy a reserve balance requirement.''
Effective Date
    The Board proposed that the effective date for the elimination of 
references to as-of adjustments be the same as the effective date of 
the corresponding amendments to Regulation D (no earlier than the first 
quarter of 2012). The Board proposed an effective date of 30 days after 
adoption of the final rule for the other clarifications. The Board 
received three comments concerning the proposed effective dates. Two of 
these commenters requested that the effective date of the changes be 
staggered, with a delayed effective date for the first change of at 
least nine months. One of these commenters stated that the elimination 
of references to ``as-of adjustments'' be made in conjunction with the 
changes in Regulation D and made effective no earlier than the first 
quarter of 2013. This commenter also recommended that the two 
clarifications be made effective no earlier than the first quarter of 
2013 because banks have already established their change management 
plans for 2012 and the clarifications will require additional changes 
to policies and procedures.
    The Board is setting the effective date for the elimination of 
``as-of adjustments'' and changes to reserve terminology as July 12, 
2012. This is the same effective date as that which has been finalized 
for the corresponding amendments to Regulation D. The Board is setting 
the effective date for the other two clarifications also as July 12, 
2012. Given that these amendments will not require institutions to take 
any action or incur any cost, the Board believes this date is 
appropriate.

IV. Competitive Impact Analysis

    As a matter of policy, the Board subjects all operational and legal 
changes that could have a substantial effect on payment system 
participants to a competitive impact analysis.\11\ Pursuant to this 
policy, the Board assesses whether proposed changes ``would have a 
direct and material adverse effect on the ability of other service 
providers to compete effectively with the Federal Reserve in providing 
similar services due to differing legal powers or constraints or 
because of a dominant market position of the Federal Reserve deriving 
from such legal differences.'' If as a result of this analysis the 
Board identifies an adverse effect on the ability to compete, the Board 
then assesses whether the associated benefits--such as improvements to 
payment system efficiency or integrity--can be achieved while 
minimizing the adverse effect on competition.
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    \11\ See ``The Federal Reserve in the Payments System,'' Fed. 
Res. Reg. Svc. ]] 9-1550, 9-1558 (Apr. 2009).
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    The final amendments that eliminate the use of as-of adjustments 
require Reserve Banks to pay compensation in the form of explicit 
interest under UCC Article 4A-506, as is required of private sector 
service providers. The final amendments to section 210.4, clarifying 
the status of the Administrative Reserve Bank of a sender of a check, 
does not affect the competitive position of the Reserve Banks vis-
[agrave]-vis private-sector service providers. With respect to the 
final amendments to section 210.25 (clarifying the applicability of 
Regulation J to remittance transfers as defined in the Electronic Fund 
Transfer Act), private-sector funds transfer systems may have the 
ability to adopt clearing-house rules that will vary the Uniform 
Commercial Code, although the extent to which this variation may occur 
remains unclear. Nevertheless, the Board does not believe this 
difference in certainty with respect to a small subset of funds 
transfers will have a material adverse effect on the ability of other 
service providers to compete with the Reserve Banks. Therefore, as 
noted in the proposal, the Board does not believe the amendments to 
Regulation J will have any direct and material adverse effect on the 
ability of other service providers to compete with the Reserve Banks.

V. Final Regulatory Flexibility Analysis

    Congress enacted the Regulatory Flexibility Act (the ``RFA'') (5 
U.S.C. 601 et seq.) to address concerns related to the effects of 
agency rules on small entities and the Board is sensitive to the impact 
its rules may impose on small entities. The RFA 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 reviewed the 
proposed regulation. In this case, the rule applies to all depository 
institutions. Based on current information, the Board believes that the 
rule would not have a significant economic impact on a substantial 
number of small entities (5 U.S.C. 605(b)). Nonetheless, the Board 
prepared an Initial Regulatory Flexibility Analysis in accordance with 
5 U.S.C. 603 in order for the Board to solicit comment on the potential 
impact of the proposed rule on small entities. The Board received no 
comments on its request.
    1. Statement of the need for, objectives of, and legal basis for, 
the final rule. The final amendments to Regulation J eliminate 
references to ``as-of adjustments'' consistent with the Board's 
amendments to Regulation D (12 CFR part 204), which simplify reserves 
administration. The amendments also clarify that an institution's 
Administrative Reserve Bank is deemed to have accepted deposit of a 
check or other item even if the institution sends the item directly to 
another Federal Reserve Bank. The amendments further clarify that 
Regulation J continues to apply to a Fedwire funds transfer even if the 
funds transfer also meets the definition of ``remittance transfer'' 
under the Electronic Fund Transfer Act. The amendments also make 
conforming changes to terminology.
    2. Summary of significant issues raised by public comment on the 
Board's initial analysis of issues, and a statement of any changes made 
as a result. The Board did not receive any public comments on the 
proposed rule addressing matters relating to the Board's initial 
regulatory flexibility analysis.
    3. Small entities affected by the final rule. The rule affects all 
institutions that

[[Page 21858]]

use Federal Reserve Bank check or wire transfer services. Pursuant to 
regulations issued by the Small Business Administration (the ``SBA'') 
(13 CFR 121.201), a ``small banking organization'' includes a 
depository institution with $175 million or less in total assets. Based 
on data reported as of December 31, 2011, the Board believes that there 
are approximately 10,313 small depository institutions, approximately 
2,754 of which have a master account with a Federal Reserve Bank.
    4. Record keeping, reporting, and other compliance requirements. 
The final rule eliminates references to as-of adjustments and replaces 
the use of as-of adjustments with direct compensation based on the 
federal funds rate. As noted above, a depository institution should not 
be harmed by this amendment because the depository institution will 
continue to be compensated for the income effects of a transaction 
error; the payment will simply be in the form of direct compensation 
instead of an as-of adjustment. The other amendments to Regulation J 
are clarifications and do not impose new requirements on depository 
institutions.
    5. Identification of duplicative, overlapping, or conflicting 
Federal rules. The Board has not identified any Federal rules that 
duplicate, overlap, or conflict with the rule. The Board's final 
clarification to Sec.  210.25 that relates to Article 4A of the UCC 
actually avoids a potential conflict that might arise by operation of 
the EFTA and Regulation E.
    6. Significant alternatives to the proposed rule. The Board is 
unaware of any significant alternatives to the rule that accomplish the 
stated objectives of the Board. Commenters did not suggest any 
alternatives that would minimize the impact of the rule on small 
entities.

VI. Paperwork Reduction Act Analysis

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the 
final rule under the authority delegated to the Board by the Office of 
Management and Budget (OMB). No collections of information pursuant to 
the PRA are contained in the final rule. The Board received no comments 
on this analysis.

List of Subjects in 12 CFR Part 210

    Banks, banking, Federal Reserve System.

Authority and Issuance

    For the reasons set forth in the preamble, the Board is amending 
Regulation J, 12 CFR part 210, as follows:

PART 210--COLLECTION OF CHECKS AND OTHER ITEMS BY FEDERAL RESERVE 
BANKS AND FUNDS TRANSFERS THROUGH FEDWIRE (REGULATION J)

0
1. The authority citation for part 210 continues to read as follows:

    Authority:  12 U.S.C. 248(i), (j), and (o), 342, 360, 464, 4001-
4010, and 5001-5018.

0
2. In Sec.  210.2, paragraph (a) is revised to read as follows:


Sec.  210.2  Definitions.

* * * * *
    (a) 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.
* * * * *

0
3. In Sec.  210.3, paragraph (a) is revised to read as follows:


Sec.  210.3  General provisions.

    (a) General. Each Reserve Bank shall receive and handle items in 
accordance with this subpart, and shall issue operating circulars 
governing the details of its handling of items and other matters deemed 
appropriate by the Reserve Bank. The circulars may, among other things, 
classify cash items and noncash items, require separate sorts and 
letters, provide different closing times for the receipt of different 
classes or types of items, provide for instructions by an 
administrative Reserve Bank to other Reserve Banks, set forth terms of 
services, and establish procedures for adjustments on a Reserve Bank's 
books, including amounts, waiver of expenses, and payment of 
compensation.
* * * * *

0
4. Section 210.4 is revised to read as follows:


Sec.  210.4  Sending items to Reserve Banks.

    (a) Sending of items. A sender, other than a Reserve Bank, may send 
any item to any Reserve Bank, whether or not the item is payable within 
the Reserve Bank's District, unless the sender's administrative Reserve 
Bank directs the sender to send the item to a specific Reserve Bank.
    (b) Handling of items. (1) The following parties, in the following 
order, are deemed to have handled an item that is sent to a Reserve 
Bank for collection:
    (i) The initial sender;
    (ii) The initial sender's administrative Reserve Bank (which is 
deemed to have accepted deposit of the item from the initial sender);
    (iii) The Reserve Bank that receives the item from the initial 
sender (if different from the initial sender's administrative Reserve 
Bank); and
    (iv) Another Reserve Bank, if any, that receives the item from a 
Reserve Bank.
    (2) A Reserve Bank that is not described in paragraph (b)(1) of 
this section is not a person that handles an item and is not a 
collecting bank with respect to an item.
    (3) The identity and order of the parties under paragraph (b)(1) of 
this section determine the relationships and the rights and liabilities 
of the parties under this subpart, part 229 of this chapter (Regulation 
CC), section 13(1) and section 16(13) of the Federal Reserve Act, and 
the Uniform Commercial Code. An initial sender's administrative Reserve 
Bank that is deemed to accept an item for deposit or handle an item is 
also deemed to be a sender with respect to that item. The Reserve Banks 
that are deemed to handle an item are deemed to be agents or subagents 
of the owner of the item, as provided in section 210.6(a) of this 
subpart.
    (c) Checks received at par. The Reserve Banks shall receive cash 
items and other checks at par.

0
5. In Sec.  210.10, paragraph (a) is revised to read as follows:


Sec.  210.10  Time schedule and availability of credits for cash items 
and returned checks.

    (a) Each Reserve Bank shall include in its operating circulars a 
time schedule for each of its offices indicating when the amount of any 
cash item or returned check received by it is counted toward the 
balance maintained to satisfy a reserve balance requirement for 
purposes of part 204 of this chapter (Regulation D) and becomes 
available for use by the sender or paying or returning bank. The 
Reserve Bank that holds the settlement account shall give either 
immediate or deferred credit to a sender, a paying bank, or a returning 
bank (other than a foreign correspondent) in accordance with the time 
schedule of the receiving Reserve Bank. A Reserve Bank ordinarily gives 
credit to a foreign correspondent only when the Reserve Bank receives 
payment of the item in actually and finally collected funds, but, in 
its discretion, a Reserve Bank may give immediate or deferred credit in 
accordance with its time schedule.
* * * * *

0
6. Section 210.11 is revised to read as follows:

[[Page 21859]]

Sec.  210.11  Availability of proceeds of noncash items; time schedule.

    (a) Availability of credit. A Reserve Bank shall give credit to the 
sender for the proceeds of a noncash item when it receives payment in 
actually and finally collected funds (or advice from another Reserve 
Bank of such payment to it). The amount of the item is counted toward 
the balance maintained to satisfy a reserve balance requirement for 
purposes of part 204 of this chapter (Regulation D) and becomes 
available for use by the sender when the Reserve Bank receives the 
payment or advice, except as provided in paragraph (b) of this section.
    (b) Time schedule. A Reserve Bank may give credit for the proceeds 
of a noncash item subject to payment in actually and finally collected 
funds in accordance with a time schedule included in its operating 
circulars. The time schedule shall indicate when the proceeds of the 
noncash item will be counted toward the balance maintained to satisfy a 
reserve balance requirement for purposes of part 204 of this chapter 
(Regulation D) and become available for use by the sender. A Reserve 
Bank may, however, refuse at any time to permit the use of credit given 
by it for a noncash item for which the Reserve Bank has not yet 
received payment in actually and finally collected funds.
    (c) Handling of payment. If a Reserve Bank receives, in payment for 
a noncash item, a bank draft of other form of payment that it elects to 
handle as a noncash item, the Reserve Bank shall neither count the 
proceeds toward the balance maintained to satisfy a reserve balance 
requirement for purposes of part 204 of this chapter (Regulation D) nor 
make the proceeds available for use until it receives payment in 
actually and finally collected funds.

0
7. In Sec.  210.25, paragraphs (b)(1) and (b)(3) are revised to read as 
follows:


Sec.  210.25  Authority, purpose, and scope.

* * * * *
    (b) * * *
    (1) This subpart incorporates the provisions of article 4A set 
forth in appendix B to this subpart. In the event of an inconsistency 
between the provisions of the sections of this subpart and appendix B 
to this subpart, the provisions of the sections of this subpart shall 
prevail. In the event of an inconsistency between the provisions this 
subpart and section 919 of the Electronic Fund Transfer Act, section 
919 of the Electronic Fund Transfer Act shall prevail.
* * * * *
    (3) This subpart governs a funds transfer that is sent through 
Fedwire, as provided in paragraph (b)(2) of this section, even though a 
portion of the funds transfer is governed by the Electronic Fund 
Transfer Act, but the portion of such funds transfer that is governed 
by the Electronic Fund Transfer Act (other than section 919 governing 
remittance transfers) is not governed by this subpart.
* * * * *

0
8. In Sec.  210.26, paragraph (b) is removed and reserved.

0
9. In Sec.  210.32, paragraphs (b)(1) and (b)(2) are revised to read as 
follows:


Sec.  210.32  Federal Reserve Bank liability; payment of interest.

* * * * *
    (b) * * *
    (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 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, 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 
interest payment is not the party entitled to compensation under 
article 4A, the sender or receiving bank shall pass through the benefit 
of the interest payment by making an interest payment, as of the day 
the interest payment is effected, 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 interest 
payment that was provided 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 to subpart B:
0
a. In Section 210.25, paragraph (b) is revised.
0
b. In Section 210.26, paragraph (i) is revised.
0
c. In Section 210.32, paragraph (b) is revised.
    The revisions read as follows:

Appendix A to Subpart B of Part 210--Commentary

* * * * *

Section 210.25--Authority, Purpose, and Scope

* * * * *
    (b) Scope. (1) Subpart B of this part incorporates the 
provisions of article 4A set forth in appendix B 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 B 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. 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 and the American Law Institute, 
from time to time, are also incorporated in subpart B of this part. 
Subpart B of this part applies to any party to a Fedwire funds 
transfer 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 for a payment order sent to a 
Federal Reserve Bank. Other parties to a funds transfer 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 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 when the 
person has actual knowledge, receives notification, or has reason to 
know from all the facts and circumstances known to the person at the 
time in question. (See UCC Sec.  1-201(25).) 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 funds transfer may be sent from an originator's bank through a 
funds-transfer system other than Fedwire to a receiving bank which, 
in turn, sends a payment order through Fedwire to execute the funds 
transfer. Similarly, a Federal Reserve Bank may execute a payment 
order through

[[Page 21860]]

Fedwire to a receiving bank that sends it through a funds-transfer 
system other than Fedwire to a beneficiary's bank. In the first 
example, if the originator's bank has notice that Fedwire 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 Fedwire 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 going through that funds transfer 
system. Because subpart B of this part is federal law, to the extent 
of any inconsistency, 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. If remote parties to 
a funds transfer, a portion of which is sent through Fedwire, have 
expressly selected by agreement a law other than subpart B of this 
part under section 4A-507(b), 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 Fedwire may be used and of the 
governing law. (See 4A-507(d).) In 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 
Fedwire.
    (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 205). A funds transfer from a 
consumer originator or a funds transfer to a consumer beneficiary 
could be carried out in part through Fedwire 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 section 210.26(i) in this 
appendix, ``Payment Order''.)
    (5) Section 919 of the EFTA, however, governs ``remittance 
transfers,'' which may include Fedwire funds transfers. 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, except that, in the event of 
an inconsistency between the provisions of subpart B 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 Reserve Bank through the Fedwire funds system. If 
the consumer subsequently exercised the right to cancel the 
remittance transfer and obtain a refund under the terms of EFTA 
section 919, 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 Reserve Bank under subpart B.
    (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 banking 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 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 
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.
* * * * *

Section 210.26--Definitions

* * * * *
    (i) 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, automated clearinghouse 
transfers and certain messages that are transmitted through Fedwire 
are not payment orders. Federal Reserve Banks and banks 
participating in Fedwire send various types of messages relating to 
payment orders or to other matters, through Fedwire, that are not 
intended to be payment orders. Under the subpart B definition, these 
messages, and messages involved with automated clearinghouse 
transfers, are not ``payment orders'' and therefore are not governed 
by this subpart. The operating circulars of the Federal Reserve 
Banks specify those messages that may be transmitted through Fedwire 
but that are not payment orders.
    (2) In some cases, messages sent through Fedwire, such as 
certain requests for credit transfer, may be payment orders under 
article 4A, but are not treated as payment orders under subpart B 
because they are not an instruction to a Federal Reserve Bank to pay 
money.
    (3) This subpart and article 4A govern 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 205) 
implementing it, do not apply to funds transfers through Fedwire 
(see 15 U.S.C. 1693a(6)(B) and 12 CFR 205.3(b)), 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 this subpart. Thus, this subpart applies to all funds transfers 
through Fedwire even though some such transfers involve originators 
or beneficiaries that are consumers. (See also Sec.  210.25(b) and 
accompanying commentary.)
* * * * *

Section 210.32--Federal Reserve Bank Liability; Payment of Interest

* * * * *
    (b) Payment of interest. (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). 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. Section 210.32(b) requires Federal Reserve Banks 
to provide compensation through an explicit interest payment.
    (2) Interest would be calculated in accordance with the 
procedures specified in section 4A-506(b). Similarly, compensation 
in the form of explicit interest will be paid to government senders, 
receiving banks, or beneficiaries described in Sec.  210.25(d) if 
they are entitled to interest under this subpart. A Federal Reserve 
Bank may also, in its discretion, pay explicit interest directly to 
a remote party to a Fedwire funds transfer that is entitled to 
interest, rather than providing compensation to its direct sender or 
receiving bank.
    (3) If a bank that received an explicit interest payment is not 
the party entitled to interest compensation under article 4A, the 
bank must pass the benefit of the explicit

[[Page 21861]]

interest payment made to it to the party that is entitled to 
compensation in the form of interest from a Federal Reserve Bank. 
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, and the value of the compensating balance is at least 
equivalent to the value of the explicit interest that otherwise 
would have been provided.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, April 5, 2012.
Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. 2012-8563 Filed 4-11-12; 8:45 am]
BILLING CODE 6210-01-P