I. INTRODUCTION
The purpose of this article is to provide a summary of Regulation CC which implements the provisions of the Expedited Funds Availability Act. The Regulation addresses funds availability schedules, the check collection process, and disclosures of funds availability policies by financial institutions. The Regulation covers both consumers and business accounts. This article is intended to address the funds availability rules of Regulation CC.
Regulation CC is a very complex regulation wherein almost every rule has an exception and there are often exceptions to the exceptions. The timing in which funds are made available to customers often depends upon the nature of the item deposited, when and where the deposit was made, the amount of the deposit or the type of accounts to which the deposit is made, and to whom the deposit was made. For example, a single deposit of checks could mean as many as eight different availability schedules.
II. DEFINITIONS
Certain terms must be defined within this summary in that they have a special regulatory meaning rather than a normal dictionary definition. The following are the key terms:
A. Account
Consumer and business transaction accounts by which the account holder is allowed to make payments or transfers to third parties by means of negotiable or transferable instruments, payment order of withdrawal, telephone transfer, electronic payment or other similar means. An account may be a demand deposit, a NOW account, share draft account, automatic transfer account, or any other transaction account defined in Regulation D. Regulation CC does not apply to savings accounts, money market accounts or time deposits.
B. Banking Day
A business day in which the bank is open for substantially all of its banking functions. A bank may establish a cutoff hour of its banking day for deposit receipts not earlier than 2:00 p.m. Deposits taken after the cutoff hour are attributed to the next banking day. Although a bank may be open, if it is not a business day (e.g., Saturday), it is not a banking day.
C. Business Day
Any calendar day other than Saturday, Sunday or a federal legal holiday specified and observed by Federal Reserve Banks.
D. Local Check
This is a check which is payable by, at or through a bank located in the same Federal Reserve check processing region as the depository bank.
E. Non-Local Check
These are all checks other than local checks. (NOTE: The move to a single paper check-processing region means that there will no longer be any non-local checks as the term is used in Regulation CC.)
III. FUNDS AVAILABILITY RULES
Keep in mind that Regulation CC provides for the maximum length of time that a bank may hold funds deposited by customers. The regulation does not prevent a bank from making customer funds available earlier than the regulation requires.
A. Next-Day Availability
There are certain types of deposits in which funds must be available for withdrawal by the start of business on the next business day after the banking day of deposit. A deposit made at a staffed facility received by mail, placed in an ATM or a bank lobby depository, transferred electronically, and U.S. Treasury checks deposited in an account of a named payee are deemed to be made when received by the bank or put in the machine. The following items must be deposited to an account of a payee of the item and in person at a staffed bank facility to qualify for next-day availability: U.S. Postal Service money orders; checks drawn on a Federal Reserve Bank or Federal Home Loan Bank; cashier’s, certified or teller checks (a special deposit slip may be required); state government or local government checks (again, a special deposit slip may be required); “on-us” checks; the lesser of $275 or the total deposited on any one banking day by types of checks other than those listed above.
B. Second-Day Availability
Local “next-day” items discussed in A. above not deposited in person at a staffed facility of the depository bank or to the account of the named payee, must be made available no later than the second business day after the banking day of deposit.
C. Fifth-Day Availability
The proceeds from non-local checks must be made available on the fifth business day following the banking day of deposit. This also includes non-local Federal Reserve Bank or Federal Home Loan Bank checks not deposited in an account of a named payee or not at a staffed facility, non-local cashier’s, certified, or teller checks not deposited in an account of a named payee or not at a staffed facility (or received without a special deposit slip required by the bank), and non-local state government or local government checks not deposited in an account of a named payee or not at a staffed facility (without a special deposit slip required by the bank). (NOTE: If a bank has a delayed funds availability policy, because all non-priority checks will be treated as local checks, it can no longer state in its funds availability policy that a non-local check will be delayed for five days.)
In the case of deposits made at a nonproprietary ATM, funds must be made available no later than the fifth business day following the banking day on which funds are deposited. An ATM is considered a proprietary ATM under the following conditions: the bank exclusively owns and operates the ATM; it is located on the bank premises; or it is located within 50 feet of the bank premises and not identified as being owned by another. A bank may delay availability of checks deposited, under certain circumstances, by one additional business day. This is the special rule for withdrawals in cash or by other similar means. An additional $450 in funds must, however, be made available for withdrawal by cash or similar means by 5:00 p.m. on the business day on which the funds would have been available under the permanent schedule. The first $225 rule will still apply. The bank’s disclosures must reflect this reservation of right to invoke this special rule.
When a bank cashes a customer’s check over the counter, it may place a hold on the customer’s deposit account(s) for the amount of the cashed check, but such hold cannot exceed the hold period that would have applied if the customer had deposited the check into a checking account. If the bank places a hold on a deposit account covered by Regulation CC (e.g., typically any transaction account), then the bank must give the customer a hold notice disclosing the hold due to a cashed check rather than a deposited check.
IV. FUNDS AVAILABILITY SCHEDULES – EXCEPTIONS
Regulation CC allows for six circumstances whereby a bank is permitted to delay funds availability beyond the time otherwise required. These exceptions are listed as follows:
A. Large Deposits
Should the total deposit of local or non-local checks by a customer on any one banking day be in excess of $6,725, a bank may invoke the large deposit exception and extend the hold for those amounts exceeding $6,725. Note that a bank may aggregate all deposits made to all accounts of the customer although the customer is not the sole holder of the accounts and not all holders of the accounts are the same.
B. Redeposited Checks
Checks that have been returned unpaid and redeposited by the customer or depository bank may be invoked as an exception unless the return was merely for a missing endorsement and the endorsement has been obtained or because the check was postdated when originally deposited and was not postdated when redeposited.
C. Repeated Overdrafts
If any account or combination of accounts of a customer is repeatedly overdrawn or would have been overdrawn if check charges to the account had been paid on six or more banking days during the last six months or if the overdraft would have exceeded $6,725 or more on more than two banking days within the last six months, the bank may invoke the repeated overdraft exception. This exception may be applied for six months after the last overdraft. The bank is allowed to extend, for a reasonable length of time, the availability of funds from local and non-local checks (other than the first $275) deposited to the customer’s account. It should be noted that the repeated overdraft exception is not based on the number of overdraft items honored or returned but on the number of days the account is or would have been in an overdraft position.
D. Reasonable Cause to Doubt Collectability
If a bank has a reasonable cause to believe a check is uncollectable, it may treat the check as an exception. The reason for this belief must be included in a notice given to the customer. Facts leading to this determination must be retained by the bank through documentation.
E. Emergency Conditions
A bank may invoke this exception under certain conditions: in the case of an interruption of communications or computer or other equipment failure; a suspension of payments by another bank; a war; or an emergency condition beyond the control of the bank if the bank exercises appropriate diligence.
F. New Accounts
For purposes of Regulation CC, an account is a new account during the first 30 days after being established by a new customer (i.e., a customer who has had no transaction account relationship within 30 days before opening the new account). During the 30 day new account period, the schedules for local and non-local checks do not apply. Note however, that next-day availability for both cash and electronic deposits is still required. In addition, the funds availability required for other next-day items is further modified. In a new account, the first $6,725 deposited in any one banking day by state, federal or local government checks, checks drawn on a Federal Reserve Bank or Federal Home Loan Bank, U.S. Postal Service money orders, and depository checks (including traveler’s checks) must be made available for withdrawal at the start of business on the next business day. The balance of the deposit must be made available no later than the ninth business day after the banking day of deposit. Finally, note that the first $275 rule does not apply.
G. Exceptions Notice
If any of the above exceptions are invoked (other than the new account exemption), a bank must give the depositor a written notice. A bank may provide this notice by FAX or other electronic media if the customer agrees, otherwise the bank should provide a paper copy of the notice to the customer. This notice must include the account number of the customer, the date of the deposit, the amount of the deposit that is being delayed, the reason the exemption is being invoked, and the day the funds will be made available for withdrawal, unless a bank invokes the emergency conditions exemption and does not know when the emergency will end (The regulation does not specify black and white rules for the notice required in emergency conditions, but provides that banks must give notice in a reasonable form and within a reasonable time given the situation, e.g., instead of individual notices, it may be reasonable to post notices at the bank and on its ATMs or announce the holds exception in print or electronic media). In the case of large deposits and redeposited checks, a one-time notice may be provided when the account is a non-consumer account and a hold is placed on most checks. In the case of repeated overdrafts, a one-time notice may also be sent every six months at the start of each time period for which this exemption will be in effect.
H. Exceptions Schedule
When exception holds are invoked, availability of funds may be delayed by more than one additional day for an “on us” check, five additional days on a local check, six additional business days on a non-local check other than for a new account. These exception holds can be up to a reasonable time longer than the statutory limit stated in the previous sentence, but the bank has the burden of proof to show why such hold was necessary. For a new account, the delay must be reasonable in time but no specific number of days is given in Regulation CC for most new account exceptions.
I. Case-by-Case Extensions
Regulation CC also allows for case-by-case extensions of the bank’s fund availability policy in order to protect banks from possible check fraud losses. Should the bank have a policy of making funds available sooner than required by Regulation CC, the bank is allowed to extend availability to the limits of the regulation so long as the depositor is given appropriate notice. The case-by-case extension notice must be given at the time the deposit was made, unless such deposit was either not made in person to an employee of the bank or the decision to extend the availability was not made at the time the deposit was taken. In these two cases, notice must be mailed or delivered to the customer the first business day following the banking day the deposit was made. A bank may provide this notice by FAX or other electronic media if the customer agrees, otherwise the bank should provide a paper copy of the notice to the customer.
V. BRANCH AND “CONTRACTUAL” BRANCH BANK CONSIDERATIONS
A bank may establish different funds availability policies for different groups of customers, such as customers in a particular geographical area or customers of a particular branch. The bank may allocate customers among groups through good faith use of a reasonable method. A bank may also establish different funds availability policies for deposits at different locations, such as deposits at a contractual branch.
The practice of one bank accepting deposits for another bank (hereinafter referred to as “contractual branching”) requires such deposits to be treated like deposits at proprietary ATMs, i.e., contractual bank deposits are considered deposited when the funds are received the contractual branch teller; however, such deposits are not subject to the next-day availability rules because these funds are not considered deposited at a teller station staffed by an employee of the depositary bank. The bank may set a cut-off hour as early as 12:00 noon. The bank must pay interest when the account holding bank receives credit for the deposit and not when the contractual bank does. A check is considered local or nonlocal based on the location of the contractual branch with respect to the location of the paying bank, e.g., a deposited check is considered a local check if drawn on a bank in the same Federal Reserve check-processing region as the contractual branch receiving the deposit.
VI. COMMON VIOLATIONS
Bankers should take note of the following most common violations occurring in Regulation CC:
A. Failure to disclose the bank’s funds availability policy prior to the opening of an account.
B. Failure to disclose accurately the bank’s funds availability policy when an account customer requests it.
C. The placement of an unnecessary hold or the placement of a hold on funds beyond the limit set in the availability schedules.
D. The failure to release funds that are subject to next-day availability.
E. The failure to have appropriate procedures to prevent errors that could invoke penalty provisions.
F. The failure to make the appropriate procedures available for staff to follow on how the bank attempts to comply with Regulation CC.