Expedited Funds Availability Act -- Regulation CC: Part 3

This blog is the final part of a three-part series which discusses the different deadlines for funds availability under Regulation CC. Specifically,  Subpart B  of the Federal Reserve's Regulation CC sets forth the timing rules for (i) when various deposits must be made available; (ii) exceptions to the general availability rules, and (iii) required disclosures. In our previous blogs ( Regulation CC: Part 1 and Part 2 ), we discussed the cash and electronic availability rules, as well as the different rules for when check funds must be made available after being deposited into an account. Today's blog will review the exceptions to the check availability rules. As you will read, there are some circumstances in which the regulation permits a credit union to deviate from the check availability rules and delay making certain funds available. 

First, section 229.12(f) states that funds deposited via cash or check into a non-proprietary ATM shall be made available “not later than the fifth business day following the banking day on which the funds are deposited.” Thus, if funds are deposited into a non-proprietary ATM, then the availability rules discussed above do not apply, and instead the deadline changes to the fifth business day after the banking day of deposit. The staff commentary discusses this and provides an example: 

“All deposits at a nonproprietary ATM must be made available for withdrawal by the fifth business day following the banking day of deposit. For example, a deposit made at a nonproprietary ATM on a Monday, including any deposit by cash or checks that would otherwise be subject to next-day (or second-day) availability , must be made available for withdrawal not later than Monday of the following week.” (Emphasis added). 

Secondly, there are six exceptions to the availability rules within section 229.13 which allow credit unions to extend the hold period for deposits that a credit union may believe carries a higher risk. These six exceptions are: 

• New Accounts ; 
• Large Deposits ; 
• Redeposited Checks ; 
• Repeated Overdrafts ; 
• Reasonable Cause to Doubt Collectability ; and 
• Emergencies

It should be noted that to invoke most of the exceptions in section 229.13 , a credit union must provide the member with the notice at the time of the deposit (unless the deposit is not made in person) as described in section 229.13(g) . This notice requirement does not apply to the new account exception or the emergency exception. However, the other exceptions listed above – large deposits, redeposited checks, repeated overdrafts, and reasonable cause to doubt collectability – require the credit union to provide written notice invoking the exception. 

New Accounts

Section 229.13(a) discusses the new accounts exception. An account is considered new during the first 30 calendar days after the account is established. This does not include accounts in which the account holder has had another account at the same credit union for at least 30 calendar days. Under this exception, next day availability only applies to cash, electronic deposits and the first $6,725 of the next day items described in section 229.10(c)(1)(i) through (v) , as long as the other conditions of next-day availability are met (i.e., deposits are made in person to an employee of the depositary bank). Any amount deposited above $6,725 must be available for withdrawal “not later than the ninth business day following the banking day on which funds are deposited.” Notably, the exception states that deposits into a new account are not subject to the requirements of section 229.10(c)(vi) (providing next-day availability for “on-us” checks) and section 229.10(c)(vii) (requiring the first $275 of funds be made available next-day for checks that do not receive next-day availability). Additionally, the exception also states that deposits into new accounts are not subject to the requirements of section 229.12 , meaning that the normal availability timelines do not apply. 

Large Deposits

Section 229.13(b) discusses the large deposits exception. Under this exception, a credit union may extend the hold periods on checks in the aggregate amount in excess of $6,725 that is deposited on any one banking day. Deposits by cash or electronic payment are not subject to the large deposit exception. The first $6,725 of funds will be subject to the funds availability rules that would normally apply for the type of check in question (such next-day or second-day availability). The staff commentary discusses this and provides an example: 

“If a customer deposits $2,000 in cash and a $9,000 local check on a Monday, $2,275 (the proceeds of the cash deposit and $275 from the local-check deposit) must be made available for withdrawal on Tuesday. An additional $6,450 of the proceeds of the local check must be available for withdrawal on Wednesday in accordance with the local schedule, and the remaining $2,275 may be held for an additional period of time under the large-deposit exception.”

Redeposited Checks

Section 229.13(c) discusses the redeposited checks exception. Under this exception, a credit union can place an extended hold on a check that had previously been deposited and returned unpaid. This exception, however, does not apply to checks that were returned due to a missing indorsement and redeposited after the missing indorsement has been obtained or to checks that were returned because they were post-dated and no longer post-dated. 

Repeated Overdrafts

Section 229.13(d) discusses the repeated overdrafts exception. Under this exception, if a member’s account is repeatedly overdrawn, the availability rules for checks do not apply for a period of six months after the last overdraft. There are two tests under the section which, if met, allows a credit union to consider a member’s account to be repeatedly overdrawn: 

1. “On six or more banking days within the preceding six months, the account balance is negative, or the account balance would have become negative if checks or other charges to the account had been paid; or 
2. On two or more banking days within the preceding six months, the account balance is negative, or the account balance would have become negative, in the amount of $6,725 or more, if checks or other charges to the account had been paid.” 

Reasonable Cause to Doubt Collectability

Section 229.13(e) discusses the reasonable cause to doubt collectability exception. Under this exception, if the credit union has reasonable cause to believe the check is uncollectible, it may extend the time funds must be made available for withdrawal. This exception applies to checks that would otherwise be made available on the next or second business day after the day of deposit. If the reasonable cause exception is invoked, section 229.13(g) requires the credit union to provide notice to the member and include the reason that the credit union believes the check is uncollectible. The staff commentary provides several examples of circumstances under which the reasonable cause exception may be invoked, including: 

“The fact that a check is deposited more than six months after the date on the check (i.e. a stale check) is a reasonable indication that the check may be uncollectible, because under U.C.C. 4– 404 a bank has no duty to its customer to pay a check that is more than six months old.” 

Importantly, the cause to doubt the collectability of the check must be based on “the existence of facts that would cause a well-grounded belief in the mind of a reasonable person.” Additionally, the regulation notes that a credit union cannot base the belief that the check is uncollectable “on the fact that the check is of a particular class or is deposited by a particular class of persons.” Thus, the regulation would likely prohibit blanket policies that all checks of a particular type or category are uncollectable.

Emergency Conditions

Section 229.13(f) discusses the emergency conditions exception. Under this exception, a credit union may place an extended hold on deposits in cases of emergencies beyond the credit union’s control, such as “an interruption of communications or computer or other equipment facilities” or “an emergency condition beyond the control of the [credit union].” 

The chart below discusses the check availability exceptions and when they can be invoked:

Exceptions to the Check Availability Rules

It is also important to note that the regulation provides a safe harbor for the exceptions mentioned above (except new accounts and emergency holds). A credit union which invokes one of the exception holds can delay availability of the funds for a “reasonable period of time.” The safe harbor defines a reasonable period of time as one additional business day for on-us checks, five additional business days for local checks and six additional business days for deposits at nonproprietary ATMs. The staff commentary notes that a credit union could extend the hold for even longer, but then the credit union would bear the burden of proving that the time period chosen is reasonable.

Hopefully this blog and the previous companion blogs have helped to demystify some of the funds availability rules in Subpart B of Regulation CC. If your credit union has questions about these regulatory requirements, please reach out to the America’s Compliance Team by emailing [email protected] .

Previous companion blog links:

Expedited Funds Availability Act -- Regulation CC: Part 1 

Expedited Funds Availability Act -- Regulation CC: Part 2