Source: https://www.rskcompliance.com/2016/04/11/rskiq-question-of-the-week-41116/
Timestamp: 2019-10-19 05:11:01
Document Index: 11811743

Matched Legal Cases: ['§229', '§229', '§229', '§229', '§229', '§229', '§229']

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RSK.IQ Question of the Week 4/11/16
Funds Availability and Overdrafts
Issue/Inquiry
Some of Bank’s DDA accounts are changed to a Regulation CC status code of “repeat overdrafter” automatically by its core processor when specific criteria are met. Once this change takes effect, check deposits no longer receive $200 next day availability if they are second day availability checks. The Bank’s processor has informed the Bank that it cannot turn this “auto” status change off, though the Bank would prefer to use this status to delay availability for five to seven days. The processor also says that banks are not required to send customers a notice in such a case, since they are not delaying the availability, but only not providing the $200.
When an account is repeatedly overdrawn, the Bank is no longer subject to the availability requirements of Regulation CC, including the special rule making $200 available the next day from non-next-day availability deposits. The Bank is not required to extend the availability period. Whether it does so is a policy decision for the Bank to make, which should be reflected in the way account transactions are processed. If the exception regarding repeated overdrafts is invoked, the Bank must notify the customer. As a matter of best practice, the notice should refer to the $200 being withheld, since it is subject to a special availability rule. When invoking the exception, the Bank may delay the availability of funds for a reasonable period of time. A “reasonable period of time” would be one additional business day for “on-us” checks and five additional business days for local checks.
Response Detail
Regulation CC Availability
Regulation CC requires deposits of various types to be made available to a depository bank’s customers, measured in business days following the banking day on which the deposit is made. Cash, electronic payments, and certain check deposits must generally be made available for withdrawal the business day after the banking day on which they were received, provided the deposit was made at a staffed teller station and deposited into an account held by the payee of the check.
Two types of deposits, U.S. Treasury checks and “on us” checks, must receive next-day availability even if the deposit was not made at a staffed teller station. Other check or cash deposits must be available on the second business day after the day of deposit, if they were not made at a staffed teller station. 12 CFR §229.10.
There is a special rule for check deposits not subject to next-day availability, which requires the financial institution to make available next day $200 from the aggregate of non-next-day items deposited by a customer. 12 CFR §229.10(c)(1)(vii).
Regulation CC provides exceptions allowing financial institutions to exceed the maximum hold periods in the availability schedules. Among them are repeated overdrafts:
If any account or combination of accounts of a depository bank’s customer has been repeatedly overdrawn, then for a period of six months after the last such overdraft, Secs. 229.10(c) and 229.12 [i.e., the availability schedule] do not apply to any of the accounts. 12 CFR §229.13(d).
This does not mean that a depository bank is required to extend the hold period when there have been repeated overdrafts, but rather that it is no longer subject to the availability requirements of the regulation. This can also be seen in the requirements pertaining to the extension of the hold period for a “reasonable period of time”:
If an exception contained in paragraphs (b) through (e) of this section applies, a depository bank may extend the time periods established under Secs. 229.10(c) and 229.12 for a reasonable period of time. 12 CFR §229.13(h)(1).
Since the Bank is not required to extend the hold period but has the option to do so, the hold period does not have to be automatically extended or the $200 withheld when there have been repeated overdrafts. The Bank may or may not extend the hold period and may or may not withhold the $200. This is a policy decision for the Bank to make, which should be reflected in the Bank’s account opening disclosures and the way account transactions are processed.
Whenever a depository institution invokes one of the exceptions, except for the one pertaining to new accounts, it must notify the customer in writing. Generally, the notice must include the following information:
The customer’s account number
The date of deposit
The amount of the deposit that will be delayed
The reason the exception was invoked
The day the funds will be available for withdrawal. 12 CFR §229.13(g)(1).
When an exception is invoked for repeated overdrafts, the institution may either send a notice in accordance with the above requirements or one stating the following:
The fact that funds are being delayed because the repeated overdraft exception will be invoked
The time period the exception will be invoked
The time period when funds will generally be made available. 12 CFR §229.13(g)(3).
Regulation CC does not indicate whether or not a specific mention must be made of the $200 that would have been made available the next day for non-next-day availability deposits. Presumably, a reference to the amount of the deposit being delayed or the fact that funds are being delayed would necessarily include the $200. We believe that it would be better practice, however, to make specific mention of the $200, since it is subject to a separate special availability rule.
As noted, if a depository institution invokes one of the exceptions allowing it to exceed the availability requirements of Regulation CC, it may delay the availability of funds for a reasonable period of time. A “reasonable period of time” is generally defined as:
One additional business day for on-us checks (making a total of two business days)
Five additional business days for local checks (making a total of seven business days)
A longer extension may be reasonable, but the depository institution has the burden of establishing it. 12 CFR §229.13(h)(1), (4).
This entry was posted on Monday, April 11th, 2016 at 3:00 pm.
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