Justices Agree that Courts, Not Fed, Should Settle Check Clearing

The Supreme Court on Wednesday said the Federal Reserve is not responsible for settling check clearing disputes among banks.

Instead, the justices said banks should duke it out in state or federal court.

The decision reverses one by the U.S. Court of Appeals for the Seventh Circuit, which last year handed jurisdiction over check-clearing squabbles to the Fed.

Justice Ruth Bader Ginsburg, writing for a unanimous court in Bank One Chicago v. Midwest Bank and Trust, agreed that Congress intended that the Fed administer the Expedited Funds Availability Act. But, she said, lawmakers did not want the central bank settling disputes.

The Fed had urged the justices to give the courts jurisdiction over these cases.

Bank One must now go back to the appeals court to recover $64,000 it lost after cashing a check drawn on Midwest Bank and Trust. Bank One blamed the loss on Midwest Bank, which originally rejected the check for improper endorsement. Bank One clarified the endorsement and credited the account, only to have Midwest reject the check a second time for insufficient funds.