Check Clearing for the 21st Century Act and Section 9-m of the Banking Law
Revised Industry Letter
February 11, 2005
To The Chief Executive Officer of the Institution Addressed:
The purpose of this letter is to set forth the New York State Banking Department's ("Department") revised position with regard to compliance with Section 9-m of the Banking Law ("Section 9-m") in light of The Check Clearing for the 21St Century Act ("Check 21").
As you are aware, Check 21 is Federal legislation that was signed into law on October 28, 2003, and became effective on October 28, 2004. Check 21 facilitates check truncation by creating a new negotiable instrument called a substitute check, which allows banks to process check information electronically.
Section 9-m of the Banking Law provides that certain banking institutions and any other financial institution that offers consumer accounts, meaning accounts established by natural persons primarily for personal, family or household purposes, which can be accessed by check, negotiable order of withdrawal or other similar written instrument, must offer at least one consumer account on which the cancelled checks are returned to the customer with the periodic account statement.
Check 21 provides that a substitute check is the legal equivalent of the original check for all purposes, including any provision of any Federal or State law, if the substitute check accurately represents all of the information on the front and back of the original check as of the time the original check was truncated, and bears the legend: "This is a legal copy of your check. You can use it the same way you would use the original check."
The Department's revised position is that banking institutions that provide the customer with a check image (front and back), an original cancelled check, or a substitute check, satisfy the requirements of Section 9-m. Section 9-m applies to all banks, trust companies, savings banks, savings and loan associations, mortgage bankers, exempt organizations as defined in Article 12-D of the Banking Law, and foreign banking corporations whether incorporated, chartered, organized or licensed under the laws of this State or any other State or the United States. (Note: Section 9-m does not apply to credit unions)
With regard to a bank's retention of checks, negotiable orders of withdrawal or similar written instruments, the Model Uniform Commercial Code ("UCC") provides that the bank shall retain these items, or maintain the capacity to furnish legible copies of the items, for seven years. However, this Model UCC provision has not been adopted in New York. Instead, in New York, Section 128 of the Banking Law requires banks and trust companies to "... preserve all records of final entry ... for a period of at least six years from the date of making the same or from the date of the last entry thereon[.] ; provided, however, that preservation of photographic reproductions thereof or photographic form shall constitute compliance with this section." Similarly, this six-year requirement for preservation of records is also contained in Section 239-a of the Banking Law for savings banks, Section 378-d of the Banking Law for savings and loan associations and Section 485 of the Banking Law for credit unions. [(Note: Section 9-m does not apply to credit unions).] These record retention requirements can be satisfied by the maintenance of a check image (front and back), an original check, a substitute check, or the electronic ability to generate a substitute check.
In addition, we note that a banking institution may impose a fee for sending customers (whether in connection with a 9-m account or otherwise) check images, original cancelled checks or substitute checks. This is the case whether they are sent to the customer with the periodic account statement or in response to a customer's request.
Check 21 requires that all depository institutions that provide substitute checks to a customer must provide a disclosure that describes substitute checks and substitute check rights, as required by 12 CFR § 229.57. Please note that additional information regarding Check 21, including the Federal Reserve Board's implementing regulations (Regulation CC) which contain a Model Substitute Check Policy Disclosure, may be found on the Federal Reserve Board's Website at www.federalreserve.gov. This guidance pertains to checks received by an institution and does not pertain to checks which have been converted to an electronic debit, by a merchant, credit card company or otherwise, prior to its receipt by an institution as an electronic funds transfer. Electronic debits by means of ACH are not required to be returned to customers in any form. Electronic funds transfers are subject to the provisions of the Federal Reserve Board's Regulation E, while check transactions are subject to the Federal Reserve Board's Regulation CC, Part 34 of the General Regulations of the Banking Board, and Check 21.
Department examiners will review your institution's compliance as part of their overall supervisory examination. The Department expects all supervised institutions to ensure compliance with laws and regulations.
Diana L. Taylor
Superintendent of Banks