Compliance - Part 2 Flashcards
What is the background of Overdraft Payment Programs? [V - 14.1]
Overdraft Payment Programs
Introduction
Prior to the 1990s, overdraft programs were not common
among financial institutions. Since that time, however,
institutions have added and/or expanded the types of overdraft
payment programs provided to customers. Some of these
programs impose substantial fees and interest and rely on
third-party vendors to develop systems to maximize the
amount of fee income generated. Customer complaints have
increased, along with reported legal and enforcement actions.
In many cases, fees are repeatedly charged and are often
disproportionate to the amount originally intended to be
funded. Some institutions manipulate their transaction
processing order to maximize fee income. Customers have
complained that they were not made aware of the existence or
potential negative consequences of, or alternatives to, various
types of overdraft coverage. Some customers’ financial
difficulties have been exacerbated by institutions’ overdraft
payment practices and programs, even though the institutions
maintain alternative programs more suitable for those
customers. These circumstances can have an adverse impact
on bank customers and present a potential risk of consumer
harm.
What guidance has the FDIC issues related to Overdraft Payment Programs and Third Parties? [V - 14.1]
In an effort to assist FDIC-supervised institutions in
identifying, managing, and mitigating risks regarding
overdraft payment programs, the FDIC issued its November
24, 2010, Overdraft Payment Supervisory Guidance (“2010
Supervisory Guidance”) (FIL-81-2010). The 2010
Supervisory Guidance, which particularly focuses on the risks
associated with excessive or chronic use of automated
overdraft programs, is intended to serve as a comprehensive,
up-to-date source of information about concerns and risks, as
well as a summary of existing guidance and recent regulatory
developments. In addition, the 2010 Supervisory Guidance
encourages FDIC-supervised institutions to promote
responsible use of overdraft payment programs through a
series of specifically recommended actions institutions can
take to help minimize the potential for consumer harm and
regulatory or other risks. These overdraft payment program
examination procedures:
* Incorporate recent changes to applicable laws and
regulations;
* Integrate the supervisory expectations stated in the 2010
Supervisory Guidance; and
* Reaffirm principles contained in the 2005 Interagency
Joint Guidance on Overdraft Protection Programs (“Joint
Guidance”) (FIL-11-2005) and the 2008 Guidance for Managing Third-Party Risk (“Third-Party Guidance”) 1
(FIL-44-2008).
The 2010 Supervisory Guidance reaffirms existing laws,
regulations, and guidance and addresses concerns regarding
the risks posed by automated programs and excessive use. The
specific supervisory expectations set out in the 2010
Supervisory Guidance with respect to excessive or chronic
users of automated overdraft programs do not apply to ad hoc
overdraft practices. In April 2011, the FDIC published a set
of Frequently Asked Questions to clarify the 2010 guidance
and to respond to questions received from supervised
institutions and third-party vendors. 2
The Joint Guidance,
3 Third-Party Guidance, and range of
applicable laws and regulations potentially apply to any
method of covering overdrafts, including automated programs,
linked accounts and lines of credit.
1 See Third-Party Risk Compliance Examination Procedures issued June 1,
2010.
2 On April 1, 2011, FDIC staff published a set of Frequently Asked Questions
and answers in response to questions received from supervised institutions
and third-party vendors about the 2010 Supervisory Guidance, available at
https://www.fdic.gov/news/conferences/overdraft/FAQ.pdf
3 Compliance examiners should pay particular attention to the “Best
Practices” in the Joint Guidance, which cover both Marketing and
Communications with Consumers and Program Features and Operation.
What are the appropriate chapters in the Compliance Examination Manual that compliance examiners should reference that govern laws and regulations applicable to overdraft payment programs? [V - 14.1]
Examination Approach and Applicable Laws and
Regulations
The FDIC’s risk-scoping examination approach requires
compliance examiners to focus their attention to operational
areas that present the greatest potential risk of consumer harm,
as appropriate, including consideration of overdraft programs.
Examiners should continue to reference appropriate chapters
in the Compliance Examination Manual governing laws and
regulations applicable to overdraft payment programs. The
scope of potentially applicable statutes and regulations that
may apply to overdraft payment programs includes:
* The Truth in Lending Act (TILA) and Regulation Z;
* The Truth in Savings Act (TISA) and Regulation DD;
* The Electronic Fund Transfer Act (EFTA) and Regulation
E;
* Section 5 of the Federal Trade Commission Act (FTC Act)
governing Unfair or Deceptive Acts or Practices
(UDAPs);
* The Equal Credit Opportunity Act (ECOA) and
Regulation B;
* The Expedited Funds Availability Act and Regulation CC;
and
* The Community Reinvestment Act (CRA).
Compliance examiners should apply the Overdraft Payment
Program Compliance Examination Procedures and relevant
laws and regulations, and refer to the 2010 Supervisory
Guidance, the Joint Guidance, and the Third-Party Guidance,
as appropriate, to verify that institutions are adhering to
applicable laws and regulations, and implementing appropriate
policies, procedures, compliance management systems, and
risk mitigation strategies.
What are the Reg E requirements and changes related to Overdrafts? [V - 14.1]
Regulation E Changes
Changes to laws and regulations place additional requirements
on institutions’ overdraft payment programs. Under
Regulation E rules that took effect July 1, 2010, institutions
must provide notice and a reasonable opportunity for
customers to opt-in to the payment of automated teller
machine (ATM) and one-time, point-of-sale (POS) overdrafts
provided in exchange for a fee. Institutions must also inform
the customer if alternatives are available.4 In complying with
these requirements, institutions should not attempt to steer
frequent users of fee-based overdraft products to opt-in to
these programs while obscuring the availability of alternatives.
Targeting customers who may be least able to afford such
products can raise safety-and-soundness concerns about
potentially unsustainable customer debt. Overly aggressive
marketing, advertising, and other promotional activities
require particular vigilance to ensure that they are not unfair or
deceptive. Steering activity with respect to credit products
raises potential legal issues, including fair lending, equal credit
opportunity, and concerns about UDAPs, among others, and
will be closely scrutinized. In addition, inconsistent
application of waivers of overdraft fees will be evaluated in
light of all applicable fair lending statutes and regulations.
4 See Regulation E (Electronic Fund Transfer Act) Examination Procedures.
In addition, as of January 1, 2010, Regulation DD (Truth in Savings)
requires institutions to disclose on periodic statements the aggregate dollar
amounts charged for overdraft fees and for returned item fees, for the
statement period and the year-to-date. It also requires institutions that
provide account balance information through an automated system to
provide a balance that does not include additional funds that may be made
available to cover overdrafts. See Regulation DD Examination Procedures.
5 15 U.S.C. § 45(a).
6 See 12 U.S.C. § 1818(b).
What are the Reg E requirements related to Overdrafts? [V - 14.1]
Unfair or Deceptive Acts or Practices
Section 5 of the FTC Act prohibits UDAPs in or affecting
commerce.5 The FDIC enforces compliance with this
important consumer protection law regarding FDIC-supervised
institutions pursuant to its authority in the FTC Act and
Section 8 of the Federal Deposit Insurance Act. 6 The
prohibition against UDAPs applies to all products and services
offered by financial institutions, including overdraft services,
and regardless of whether such services are offered directly or indirectly through a third party. Moreover, the prohibition
applies to every stage and activity: from product development
to the creation and rollout of the marketing campaign; from
account maintenance and collections all the way through
termination of the customer relationship.7
5 15 U.S.C. § 45(a).
6 See 12 U.S.C. § 1818(b).
7 See Unfair or Deceptive Acts or Practices Compliance Examination
Procedures.
What are the CRA consideration related to Overdraft Payment Programs? [V - 14.1]
Community Reinvestment Act
Institutions will continue to receive favorable CRA
consideration under the service or lending tests (consistent
with CRA regulations and FIL-50-2007 providing details on
small dollar loans 8
), for offering financial education and
positive alternatives to overdrafts that are responsive to the
needs of customers, particularly low- and moderate-income
individuals, in their local communities. Examples include
lower-cost transaction accounts and credit alternatives, such as
a linked savings account, a small, reasonably priced line of
credit consistent with safe and sound banking practices, or a
safe and affordable small dollar loan.
8 See also Interagency Questions and Answers Regarding Community
Reinvestment, 75 Fed. Reg. 11642 (Mar. 11, 2010), available at
http://www.ffiec.gov.
What are the Third-Party Arrangement implications of Overdraft Payment Programs? [V - 14.1]
Third-Party Arrangements
With the growth of third-party arrangements for overdraft
payment programs, Compliance examiners should ensure that
financial institutions are managing these relationships in
accordance with the principles outlined in the Third-Party
Guidance.
9 In addition to general third-party oversight
considerations, these third-party overdraft payment programs
may raise concerns that differ from potential issues related to
in-house programs. For example, some vendors have tended to
promote programs that encourage generation of fee income by
linking the amount or volume of overdraft fees charged to the
percentage of incentive compensation paid to the vendor.10
This practice is generally inconsistent with promoting the
responsible use of these programs.
Where vendor compensation is tied to a percentage of income
or fees generated by the product sold, Compliance examiners
should evaluate whether the third-party relationship raises the
potential for compliance, operational, financial, and
reputational risks to the financial institution. For example,
where a third-party arrangement provides that the vendor will
take a reduced percentage of compensation if the financial
institution implements a transaction processing order of
largest-to-smallest, this arrangement may rise to the level of a
UDAP violation if the institution, at the vendor’s
encouragement, is manipulating the transaction processing order solely to generate fees and increase both the institution’s
fee income and the vendor’s compensation. Customers may be
harmed if this practice is designed exclusively to increase the
amount of overdraft fees assessed without any corresponding
and meaningful benefit to the consumer.
9 See footnote 2.
10 See FDIC Study of Bank Overdraft Programs (November 2008) at p. 50
(Section VII), available at https://www.fdic.gov/bank/analytical/overdraft.
What is covered under the 2010 Supervisory Guidance (Overdraft Payment Supervisory Guidance) [V - 14.1]
The 2010 Supervisory Guidance
The FDIC expects that supervised institutions will review their
current automated overdraft payment programs, policies and
procedures in light of the 2010 Supervisory Guidance. For
example, as a threshold matter, Compliance examiners should
determine if the institution has reviewed its existing program
and determined whether the institution is going to:
* Give customers the opportunity to affirmatively choose
the credit product most suitable for their financial needs,
including overdraft payment products;
* Ensure that customers understand overdraft payment
programs and alternative product choices;
* Appropriately monitor accounts and take meaningful and
effective action to reach customers frequently using
automated overdraft programs to inform them of lowercost alternatives;
* Structure transaction clearing practices in a neutral manner
not intended to maximize overdraft-related fees charged to
customers; and
* Establish appropriate daily limits on fees.
What steps should examiners take to Identify the Types of Overdraft Payment Programs Offered [V - 14.1]
Identification of Types of Overdraft Payment Programs
Offered
Compliance examiners should first identify overdraft payment
practices, programs and products offered and used by the
financial institution at each examination, and consider the
applicability of existing laws, regulations and guidance, as
appropriate. In particular, examiners will need to determine
whether overdraft payment decisions and programs are
automated or not.
Automated overdraft payment programs typically rely on
computerized decision-making and use pre-established criteria
to pay or return specific items. There is little to no case-by case review and decision-making with respect to an individual
customer or item. By contrast, ad hoc programs typically
involve the exercise of bank employee judgment in making a
specific decision about whether to pay or return an item, as an
accommodation and based on the employee’s knowledge of a
particular customer. See Management and Policy-Related
Examination Procedures of this section for further explanation
of automated and ad hoc programs.
Automated overdraft payment programs are the focus of the
2010 Supervisory Guidance. Ad hoc overdraft payments have
been authorized by banks for years as an accommodation based on specific considerations and knowledge of a particular
customer, and they have generally not been the subject of the
type of product over-use concerns that can be associated with
automated overdraft programs. Consequently, the specific
supervisory expectations set out in the Guidance regarding
customer contact for excessive or chronic users do not
apply to ad hoc overdraft practices. Compliance examiners
should not focus on ad hoc overdraft payments or practices
when evaluating appropriate risk mitigation efforts in
connection with the 2010 Supervisory Guidance; however, if
significant safety and soundness or compliance risks regarding
ad hoc programs and practices are identified, an examiner may
consider an expanded review (See Expanded Review for Ad
Hoc Programs or Practices).
Examiners should focus on identifying and mitigating the
significant risks posed by automated overdraft programs,
including taking a risk-based approach in scoping
examinations to verify that institutions’ automated overdraft
payment programs comply with applicable laws and
regulations, and that such programs are not operating in a
manner that is inconsistent with expectations set out in the
2010 Supervisory Guidance, the Joint Guidance and the ThirdParty Guidance. In examining for appropriate application of
the 2010 Supervisory Guidance, reviews of management
activities, policies and procedures, and transaction testing,
including document requests, should focus on automated
overdraft programs.
What Supervisory Action should examiners take to Mitigate Risks related to Overdraft Payment Programs? [V - 14.1]
Supervisory Action to Mitigate Risks
Overdraft payment programs that are found to pose
unacceptable safety and soundness or compliance risks will be
factored into examination ratings, and corrective action will be
taken where necessary. Violations should be cited on the
appropriate Violation pages of the Report of Examination
(ROE). Other concerns regarding practices that are
inconsistent with the 2010 Supervisory Guidance, the Joint
Guidance, and/or the Third-Party Guidance should be
discussed in the Examiner’s Comments and Conclusions page
of the ROE. Additionally, Compliance examiners should make
appropriate recommendations to bank management on the
Matters Requiring Board Attention page in the ROE, when
applicable. These violations and concerns should be taken into
consideration when assessing the institution’s Compliance
Management System (CMS) and determining the overall
Compliance Rating.
Appropriate corrective action will be pursued where overdraft
payment practices or programs pose unacceptable safety and
soundness or compliance management system risks, or result
in violations of laws or regulations, including UDAPs.
Depending on the circumstances, corrective action may
include ratings downgrades, informal agreements, enforcement
orders, customer restitution, and/or civil money penalties.
Regional Offices should ensure that appropriate postexamination tracking covers instances where the ROE
identifies:
* Inconsistencies with the 2010 Supervisory Guidance, the
Joint Guidance and the Third-Party Guidance given an
institution’s overall CMSand risk mitigation approach,
and
* Other overdraft-related violations and concerns, to ensure
that timely and appropriate corrective action is taken by
bank management.
In addition, at the conclusion of each compliance examination,
examiners are required to complete the overdraft payment
program related questions in the Credit and Consumer
Product/Services Survey. Finally, Compliance examiners
should consult with Risk Management examiners, as
appropriate, where safety and soundness concerns are
identified.
What is the purpose of the EFAA? [VI - 1.1]
Expedited Funds Availability Act
Introduction
1. Expedited Funds Availability Act (EFA Act)
2. Check Clearing for the 21st Century
Act (Check 21)
*EFAA “implements both Acts; doesn’t this mean EFAA includes two Acts, but the Reg implements?
Regulation CC (12 CFR 229), as amended, implements two
laws—the Expedited Funds Availability Act (EFA Act), which
was enacted in August 1987 and became effective in
September 1988, and the Check Clearing for the 21st Century
Act (Check 21), which was enacted in October 2003 and
became effective on October 28, 2004. The regulation sets
forth the requirements that depositary institutions (“banks”)
make funds deposited into transaction accounts available
according to specified time schedules and that they disclose
their funds availability policies to their customers. It also
establishes rules designed to speed the collection and return of
checks and electronic checks and describes requirements that
affect banks that create or receive substitute checks, including
requirements related to consumer disclosures and expedited
recredit procedures.
What are the Subparts and Appendices to the EFAA? [VI - 1.1]
Regulation CC contains four subparts. The first three
implement the EFA Act, and the fourth implements Check 21.
Specifically:
* Subpart A—Defines terms and provides for
administrative enforcement
* Subpart B—Specifies availability schedules, or
timeframes within which banks must make funds
available for withdrawal; also includes rules
concerning exceptions to the schedules, disclosure
of funds availability policies, payment of interest,
and bank liability for noncompliance
* Subpart C—Sets forth rules concerning the
expeditious return of checks and electronic checks,
the responsibilities of paying and returning banks,
notice of nonpayment for large-dollar returns by the
paying bank, check and electronic checkindorsement standards, and other related changes to
the check-collection system
* Subpart D—Contains provisions concerning the
requirements a substitute check must meet to be the
legal equivalent of an original check; bank duties,
warranties, and indemnities associated with
substitute checks; expedited recredit procedures for
consumers and banks; and consumer disclosures
regarding substitute checks
The appendixes to the regulation provide additional
information:
* Appendix A—Routing number guide
* Appendix B - Reserved
* Appendix C—Model forms and clauses that banks
may use to meet their disclosure responsibilities
under the regulation
* Appendix D – Indorsement, reconversion, and
truncation requirements in connection with
substitute checks
* Appendix E – Commentary
* Appendix F – Official Federal Reserve Board
(“Board”) Interpretations; Preemption
Determinations
What is the definition of an Account under Subpart A of the EFAA? [VI - 1.1]
Account
For purposes of Subparts B & C:
-Deposit/transaction
-Consumer/corporate
-Does NOT include accounts of banks
For purposes of Subpart D:
-Any deposit at a bank, including a demand deposit or other
transaction account and a *savings deposit or other time
deposit.
For purposes of subparts B and C, an account is a ‘‘deposit’’
(as defined in the Board’s Regulation D, in 12 CFR
204.2(a)(1)(i)) that is a ‘‘transaction account’’ (as defined in
12 CFR 204.2(e)). ‘‘Account’’ encompasses consumer and
corporate accounts and includes accounts from which the
account holder is permitted to make transfers or withdrawals
by any of the following:
* Negotiable instrument
* Payment order of withdrawal
* Telephone transfer
* Electronic payment
For purposes of subpart B, ‘‘account’’ does not include
accounts for which the account holder is a bank, an
office of a bank or foreign bank that is located outside
the United States, or the Treasury of the United States.
For purposes of subpart D, ‘‘account’’ means any
deposit at a bank, including a demand deposit or other
transaction account and a savings deposit or other time
deposit. Many deposits that are not accounts for
purposes of the other subparts of Regulation CC, such as
savings deposits, are accounts for purposes of subpart D.
What is the definition of a Bank under Subpart A of the EFAA? [VI - 1.1]
Bank
The term bank refers to Federal Deposit Insurance
Corporation insured banks, mutual savings banks, savings
banks, and savings associations; federally insured credit
unions; non-federally insured banks, credit unions, and thrift
institutions; agencies and branches of foreign banks; and
Federal Home Loan Bank (FHLB) members.
For purposes of subparts C and D, ‘‘bank’’ also includes any
person engaged in the business of banking, Federal Reserve
Banks, FHLBs, andstate and local governments to the extent
that the government unit pays checks.
For purposes of subpart D only, ‘‘bank’’ also refers to the
U.S. Treasury and the USPS to the extent that they act as
payors.
* The term paying bank applies to any bank at which
or through which a check is payable and to which it
is sent for payment or collection. For purposes of
subpart D, ‘‘paying bank’’ also includes the U.S.
Treasury and the USPS. The term also includes
Federal Reserve Banks, FHLBs, state and local
governments, and, if the check is not payable by a
bank, the bank through which a check is payable.
* A reconverting bank is the bank that creates a
substitute check or is the first bank to transfer or
present a substitute check to another party.
What is the definition of a Check under Subpart A of the EFAA? [VI - 1.1]
Check
The term check includes both original checks and substitute
checks.1
* An original check is the first paper check issued
with respect to a particular payment transaction.
* A substitute check is a paper reproduction of an
original check that
– Contains an image of the front and back of the
original check,
– Bears a MICR line containing all of the
information encoded on the original check’s MICR
line, except as provided in the industry standard
for substitute checks, 2
– Conforms in dimension, paper stock, and
otherwise with industry standards for substitute
checks, and
– Is suitable for automated processing in the same
manner as the original check.
A substitute check for which a bank has provided the
warranties described in section 229.52 is the legal equivalent
of an original check if the substitute check accurately
represents all of the information on the front and back of the
original check 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.’’
* A copy of an original check is any paper
reproduction of an original check, including a paper
printout of an electronic image, a photocopy, or a
substitute check. A sufficient copy is a copy of an
original check that accurately represents all of the
information on the front and back of the check at
the time of truncation or is otherwise sufficient to
establish the validity of a claim.
* Truncatemeans to remove an original check from
the forward collection or return process and replace
it with a substitute check or, by agreement,
information relating to the original check. The
truncating bank may or may not choose to provide
subsequent delivery of the original check.
* A local check is a check deposited in a depositary
bank that is located in the same Federal Reserve
Bank check-processing region as the paying bank. 3
1 The term ‘‘check’’ does not include checks drawn in a foreign
currency or checks drawn on a bank located outside the United States. 2 ‘‘MICR (magnetic ink character recognition) line’’ refers to the
numbers—including routing number, account number, check number,
and check amount, and other information—that are printed across the
bottom of a check in magnetic ink in accordance with American
National Standard (ANS) Specifications for Placement and Location of
MICR Printing, X9.13 or an original check and an Image Replacement
Document-IRD, X9.100-140, for a substitute check. ANS X9.100-140
specifies ways in which the content of a substitute check’s MICR line
may vary from the content of the original check’s MICR line. ANS
X9.100-140 also specifies circumstances in which a substitute check
MICR line need not be printed in magnetic ink. For purposes of
subpart C and D, MICR line also refers to the numbers contained in a
record specified for MICR line data in an electronic check or
electronic returned check in accordance with ANS Specifications for
Electronic Exchange of Check Image Data – Domestic, X9.100-87.
3 The regulation currently continues to reference non-local checks. See,
e.g. 12 CFR 229.2(r). However, in February 2010, the Federal
Reserve consolidated all of its check processing operations into a
single paper check-processing region. Accordingly, there are no
longer nonlocal checks.
What are the definitions of a Electronic Check, Electronic Returned Check, and
Electronically-Created Item under Subpart A of the EFAA? [VI - 1.1]
Electronic Check, Electronic Returned Check, and
Electronically-Created Item
An electronic check and electronic returned check mean an
electronic image of, and electronic information derived from, a
paper check or paper returned check, respectively, that—
(1) Is sent to a receiving bank pursuant to an agreement
between the sender and the receiving bank; and
(2) Conforms with ANS X9.100-187, unless the Board
by rule or order determines that a different standard
applies or the parties otherwise agree.
Electronic checks and electronic returned checks are subject to
subpart C of Regulation CC as if they were checks or returned
checks, except where provided in subpart C.
An electronically-created item means an electronic image that
has all the attributes of an electronic check or electronic
returned check, but was created electronically and not derived
from a paper check.
What are the definitions of Consumers and Customers under Subpart A of the EFAA? [VI - 1.1]
Consumers and Customers
* A consumer is a natural person who draws a check
on a consumer account or cashes or deposits a
returned check against a consumer account.
* A consumer account is an account used primarily for
personal, family, or household purposes.
* A customer is a person who has an account with a
bank.
What are the definitions of Banking and Business Days under Subpart A of the EFAA? [VI - 1.1]
Business and Banking Days
* A business day is any day except Saturday, Sunday,
and a legal holiday (standard Federal Reserve
holiday schedule).
* A banking day is a business day on which a bank is
open for substantially all its banking activities.
Even though a bank may be open for regular business on
a Saturday, that day is not considered a banking day for
purposes of Regulation CC because Saturday is never a
‘‘business day’’ under the regulation. The fact that one
branch is open to the public for substantially all its
banking activities does not necessarily mean that
specific day is a banking day for the other branches of
the bank.
What is the definitions of an Indemnifying Bank under Subpart A of the EFAA? [VI - 1.1]
Indemnifying Bank
Indemnifying bank means –
* For the purposes of §229.34, a bank that provides an
indemnity under §229.34 with respect to remote
deposit capture or an electronically-created item, or
* For the purposes of §229.53, a bank that provides an
indemnity under §229.53 with respect to a substitute
check.
What are the Administrative Enforcement – §229.3 provisions under Subpart A of the EFAA? [VI - 1.1]
Administrative Enforcement – §229.3
Regulation CC is to be enforced for banks through section 8 of
the Federal Deposit Insurance Act (12 USC 1818 et seq.) and
through the Federal Credit Union Act (12 USC 1751 et seq.).
In addition, a supervisory agency may enforce compliance
through any other authority conferred on it by law. The Board
is responsible for enforcing the requirements of Regulation CC
for banks that are not specifically the responsibility of another
government agency.
What are the General Rules under Subpart B – Availability of Funds and Disclosure of Funds Availability Policies? [VI - 1.1]
General Rules (§§ 229.10(a)–229.10(c))
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. Among the
covered check deposits are cashier’s, certified, and teller’s
checks; government checks (including U.S. Treasury checks,
USPS money orders, state and local government checks, and
checks drawn on a Federal Reserve Bank or an FHLB); and
certain on-us checks (checks drawn on the same bank, or a
branch thereof).
Generally, to qualify for next-day availability, the deposit
must be both
* Made at a staffed teller station and
* Deposited into an account held by the payee of the
check.
*Exceptions are U.S. Treasury checks and on-us checks, which
must receive next-day availability even if the deposit is not
made at a staffed teller station.
**Cash and other next-day check
deposits (such as Postal Service money orders, cashier’s
checks, certified checks, checks drawn on a state or local
government, and checks drawn on a Federal Reserve Bank or a
FHLB) that are not made at a staffed teller station must be
available for withdrawal on the second business day after the
day of deposit. (§§ 229.10(a)(2) and 229.10(c)(2))
What are the Additional Rules under Subpart B – Availability of Funds and Disclosure of Funds Availability Policies - Next Day Availability? [VI - 1.1]
Additional Rules
A few additional rules also apply:
* State and local government checks—For state and
local government checks to receive next-day
availability, the depositary bank must be located in
the same state as the governmental unit issuing the
check. (§ 229.10(c)(1)(iv))
* Special deposit slips or envelopes—For deposits of
state and local government checks, as well as
deposits of cashier’s, certified, and teller’s checks,
the depositary bank may require the use of special
deposit slips or envelopes. If the depositary bank
requires the use of special deposit slips or envelopes,
it must either provide the slips or tell customers how
they can be obtained. (§ 229.10(c)(3))
* On-us checks—For an on-us check to receive next day availability, it must be drawn on the same branch
or another branch of the bank where it is deposited.
In addition, both branches must be located in the
same state or check-processing region. (§
229.10(c)(1)(vi))
* $225 rule—Under a special rule for check deposits
not subject to next-day availability, the depositary
bank must provide next-day availability for
withdrawal of the lesser of $200 or the aggregate
amount deposited to all accounts, including individual and joint accounts, held by the same
customer on any one banking day. The $200 rule
does not apply to deposits received at nonproprietary
automated teller machines (ATMs).
(§ 229.10(c)(1)(vii) and 12 U.S.C. 4002(a)(2)(D)) 4
4 Although the current Regulation CC uses $100, the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Pub. L. 111-203)
amended the EFA Act from $100 to $200.
What are the Additional Rules under Subpart B – Availability of Funds and Disclosure of Funds Availability Policies - Availability Schedule – §229.12
? [VI - 1.1]
Availability Schedule – §229.12
General Rules (§§ 229.12(a)–229.12(c) and 229.12(f))
Under the permanent availability schedule, which became
effective in September 1990, local check deposits must be
made available no later than the second business day
following the day on which the funds were deposited (See
Figure 1). Funds deposited at nonproprietary ATMs,
including cash and all checks, must be made available no
later than the fifth business day following the banking day on
which they were deposited.
Checks that would normally receive next-day availability are
treated as local check deposits if they do not meet all the
criteria for next-day availability under section 229.10(c). (As
noted in the preceding section, certain checks generally
deposited at a staffed teller station and into an account held
by the payee of the check receive next-day availability.
However, state and local government checks and certain onus checks are subject to additional rules.)
U.S. Treasury checks and USPS money orders that do not
meet all the requirements for next-day or second-day
availability outlined in section 229.10(c) receive funds
availability as if they were local checks. Cashier’s, certified,
teller’s, and state and local government checks and checks
drawn on a Federal Reserve Bank or FHLB that do not meet
all the requirements in section 229.10(c) also receive funds
availability as local checks.
What are the Special Rules for Cash Withdrawals (§ 229.12(d))? [VI - 1.1]
Special Rules for Cash Withdrawals (§ 229.12(d))
Special rules apply to cash withdrawals from local check
deposits. The depositary bank is allowed to extend the
availability schedule for cash or similar withdrawals by one
day. If it does, a customer must also be allowed to withdraw
$400 of the deposited funds (or the maximum amount that
may be withdrawn froman ATM, but not more than $400) no
later than 5:00 p.m. on the day the funds would have ordinarily
become available for check withdrawals, that is, the second
business day after the deposit. This is in addition to the $200
that must be made available on the business day following
deposit. The remainder of the deposited funds would be
available for cash withdrawal on the following, third business
day.
What is the Extension of the Schedule for Certain Deposits (§ 229.12(e)) [VI - 1.1]
Extension of the Schedule for Certain Deposits (§ 229.12(e))
Banks in Alaska, Hawaii, Puerto Rico, American Samoa, the
Commonwealth of the Northern Mariana Islands, Guam, and
the U.S. Virgin Islands that receive checks drawn on or
payable through banks located in another state may extend the
availability schedules for local checks by one day. The
exception does not apply to checks drawn on banks in these
states or territories and deposited in banks located in the
continental United States.
What are Exceptions to the Availability Schedule—Section 229.13 [VI - 1.1]
Exceptions to the Availability Schedule—Section 229.13
The regulation provides for exceptions that allow banks
to exceed the maximum hold periods specified in the
availability schedule. The exceptions are considered
‘‘safeguards’’ because they offer banks a means of
reducing risk based on the size of the deposit, the
depositor’s past performance, the absence of a record on
the depositor’s past performance, or a belief that the
deposit may not be collectible.
What are Exceptions Categories to the Availability Schedule—Section 229.13 [VI - 1.1]
Categories of Exception (§§ 229.13(a)–229.13(f))
The regulation provides for exceptions in six situations:
(1) * New accounts
(2) * Deposits in excess of $5,000 on any one day
(3) * Checks that have been returned unpaid and are being
redeposited
(4) * Deposits to accounts that have been repeatedly
overdrawn
(5) * Cases in which the bank has reasonable cause to
believe the check being deposited is uncollectible
(6) * Emergency conditions
Acronym:
Never - New Accounts
Doubt - Deposits in excess of $5,000
Chickens Checks returned unpaid –> redeposited
Don’t - Deposits to accts repeatedly overdrawn
Cook - Cases where collectability is in doubt
Everyday - Emergency conditions
Although banks may exceed the timeframes for availability in
these situations, the exceptions generally may not be invoked
if the deposit would ordinarily receive next-day availability.
What is the New Accounts Exception to the Availability Schedule [VI - 1.1]
New Accounts (§ 229.13(a))
“Never”
An account is considered a ‘‘new’’ account, under section
229.13(a), for the first 30 calendar daysit is open, beginning
on the date the account is established. An account is not
considered ‘‘new’’ if ‘‘each customer on the account has had,
within 30 calendar days before the account is established,
another account at the bank for at least thirty calendar days.’’
*The new-account exception does not cover all deposits made
to the account. New accounts are exempted from the
availability schedules for deposits of local checks, but next-day
availability is required for deposits of cash and for electronic
payments. Also, the first $5,000 of a day’s aggregate deposits
of government checks (including federal, state, and local
governments), cashier’s, certified, teller’s, depository, or
traveler’s checks must be given next-day availability. The
amount in excess of $5,000 must be made available no later
than the ninth business day following the day of deposit.
Local checks - exceptions
T - check: N/A - made avail. next day and regardless of whether at staffed teller or ATM
Cash/electronic - NOT exceptions
Government checks, cashier’s, certified, teller’s, depository, or
traveler’s checks: First $5,000 first day
NOT required to make the first $225 of a day’s deposits of local checks, or the funds from on-us checks, available on the next business day
To qualify for next-day availability, deposits into a new
account generally must be made in person to an employee of
the depositary bank. If the deposits are not made in person to
an employee of the depositary bank—for instance, if they are
made at an ATM—availability may be provided on the
second business day after the day of deposit (is this referring to new acct deposits that WOULD receive next day/are not exempt - i.e. cash or electronic?). Treasury check deposits, however, must be given next-day availability regardless of whether they are made at staffed teller stations or ATMs. Banks are not required to make the first $225 of a day’s deposits of local checks, or the funds from on-us checks, available on the next business day.
What is the Large Deposits Exception to the Availability Schedule [VI - 1.1]
Large Deposits (Deposits over $5,000) (§ 229.13(b))
“Doubt”
A depositary bank may extend hold schedules when deposits
other than cash or electronic payments exceed $5,000 on any
one day. A hold may be applied to the amount in excess of
$5,000. To apply the rule, the depositary bank may aggregate
deposits made to multiple accounts held by the same customer,
even if the customer is not the sole owner of the accounts.
Does NOT apply to cash or electronic PMTs
*Applied to amt in excess of $5,000 (individual deposits may be aggregated)
What is the Redeposited Checks Exception to the Availability Schedule [VI - 1.1]
Redeposited Checks (§ 229.13(c))
“Chickens”
A depositary bank may delay making the funds from a check
available if the check had previously been deposited and
returned unpaid. The exception does not apply to checks that
were previously returned unpaid because of a missing
indorsement or because the check was postdated when
presented.
*Does not apply when checks had to be redeposited since they were missing indorsements or post-dated
What is the Deposits to accounts that have been repeatedly overdrawn Exception to the Availability Schedule [VI - 1.1]
Repeated Overdrafts (§ 229.13(d))
“Don’t”: Deposits to accounts that have been repeatedly overdrawn (repeated overdrafts)
If a customer’s account, or accounts, have been repeatedly
overdrawn during the preceding six months, the bank may
delay making the funds from a check available. A customer’s
account may be considered repeatedly overdrawn in two ways.
(1) First, the exception may be applied if the account was
overdrawn, or would have been overdrawn had check or other
charges been paid, for six or more banking days during the
preceding six months.
*This applies to the payor?
(2) Second, the exception may be applied to customers who
incurred overdrafts on two banking days within the preceding
six-month period if the negative balance in the account(s) at
that time was $5,000 or more. The exception may also apply if
the account would have been overdrawn by $5,000 or more
had the check or other charges been paid.
What are the Cases in which the bank has reasonable cause to
believe the check being deposited is uncollectible Exception to the Availability Schedule [VI - 1.1]
Reasonable Cause to Doubt Collectability (§ 229.13(e))
“Cook”
*Applies to all checks
This exception may be applied to all types of checks. To
trigger the exception, the depositary institution must have
reasonable cause to believe that the check is not collectible
and must disclose the basis for the extended hold to the
customer. The basis for reasonable cause may include, for
example, communication with the paying bank indicating that
* A stop-payment order has been placed on the
check
* There are insufficient funds in the drawer’s
account to cover the check
* The check will be returned unpaid
The reasonable-cause exception may also be invoked
in cases in which
* The check was deposited six months after the
date of the check (stale date)
* The check was postdated (future date)
* The depositary bank believes that the depositor
may be engaged in check kiting
* The depositary bank has other confidential
information, such as the insolvency or pending
insolvency of the customer
The reasonable-cause exception may not be invoked
based on the fact that the check is of a particular class or
is deposited by a particular class of persons. For
example, this exception may not be invoked because of:
* The race or national origin of the depositor
* The fact that the paying bank is located in a
rural area and the depositary bank will not
have time to learn of nonpayment of the check
before the funds have to be made available
under the availability schedules in place
* The fact that the check is a cashier’s check
(without any additional information about the
particular check that would provide reasonable
cause to doubt collectability)
If the depositary bank intends to use this exception, it
must notify the customer, in writing, at the time of
deposit. If the deposit is not made in person or the
decision to place the hold is based on facts that become
known to the bank at a later date, the bank must mail the
notice by the business day after the day the deposit is
made or the facts become known. The notice must
indicate that availability is being delayed and must
include the reason the bank believes the funds are
uncollectable. If a hold is placed on the basis of
confidential information, as when check kiting is
suspected, the bank need only disclose to the customer
that the hold is based on confidential information
indicating that the check may not be paid.
If the depositary bank asserts that the hold was based on
confidential information, it must note the reason on the
notice it retains as a record of compliance. The bank
must maintain a record of each exception notice,
including documents and a brief description of the facts
supporting the reasonable-cause exception, for two
years.
What is the Emergency conditions Exception to the Availability Schedule [VI - 1.1]
Emergency Conditions (§ 229.13(f))
Banks may suspend the availability schedule under the
following emergency conditions:
* An interruption of communications or computer or
other equipment facilities
* Suspension of payments by another bank
* War
* Any emergency condition beyond the control of the
depositary bank
What are the Notices of Exception (§ 229.13(g)) Requirements [VI - 1.1]
Notices of Exception (§ 229.13(g))
Whenever a bank invokes one of the exceptions to the
availability schedules (other than the new-account exception),
it must notify the customer in writing. The bank may send a
notice that complies solely with section 229.13(g)(1) (the
‘‘general exception noti
What must the General Exception Notice (§ 229.13(g)(1)) include? [VI - 1.1]
General Exception Notice (§ 229.13(g)(1))
The general notice of exception must include the following:
* The customer’s account number
* The date of the deposit
* The amount of the deposit that will be delayed
* The reason the exception was invoked
* The time period the funds will be available for
withdrawal (unless unknown, as in an emergency
situation)
If the deposit is made at a staffed facility, the notice may be
given to the person making the deposit, regardless of whether
that person is the customer who holds the account. If the
deposit is not made at a staffed facility, the exception notice
may be mailed to the customer no later than the business day
following the banking day of deposit. If the depositary bank
discovers a reason to delay the funds subsequent to the time
the notice should have been given, the bank must notify the
customer about the hold as soon as possible, but no later than
the business day after the facts become known. Certain
exception holds due to emergency conditions do not require notification of customers. For example, if the deposited funds
that were subject to a hold during an emergency become
available for withdrawal before the time the notice must be
sent, the depositary bank need not send a notice.
What is the One-Time Exception Notice for Non-consumer Accounts (§
229.13(g)(2)) [VI - 1.1]
One-Time Exception Notice for Nonconsumer Accounts (§
229.13(g)(2))
If most of the check deposits into a particular nonconsumer
account qualify for either the large-deposit exception or the
redeposited-check exception, the bank may send a one-time
notice rather than a notice complying with section
229.13(g)(1) each time the exception is invoked. The onetime notice must be sent either the first time the exception is
invoked or before that time. It must state both
* The reason the exception may be invoked and
* The time period when the funds will generally be
made available.
What is the Exception Notice for Repeated Overdrafts (§ 229.13(g)(3))
[VI - 1.1]
Exception Notice for Repeated Overdrafts (§ 229.13(g)(3))
If most of the check deposits into a particular account qualify
for the repeated-overdraft exception, the bank may send an
exception notice that covers a specified period of time rather
than a notice complying with section 229.13(g)(1) each time
the exception is invoked. The ‘‘specified period’’ notice must
be sent when the overdraft exception is first invoked. It must
state all of the following:
* The customer’s account number
* The fact that access to the funds is being delayed
because the repeated-overdraft exception is being
invoked
* The time period during which the exception will
apply
* The time period within which the funds generally
will be available for withdrawal
Availability of Deposits Subject to Exceptions (§ 229.13(h)) [VI - 1.1]
Availability of Deposits Subject to Exceptions (§ 229.13(h))
For deposits subject to exceptions to the availability
schedules, other than deposits into new accounts, the
depositary bank is permitted to delay availability for a
reasonable time beyond the schedule. Generally, a
reasonable period is considered to be no more than one
business day for on-us checks and five business days for
local checks. If a depositary bank extends its availability
beyond these timeframes, it must be able to prove that the
extended delay is reasonable.
What are the General Rule (§ 229.14(a)) for the Payment of Interest – §229.14?
[VI - 1.1]
Payment of Interest – §229.14
General Rule (§ 229.14(a))
A depositary bank must begin accruing interest on interest bearing accounts no later than the business day on which it
receives provisional credit for the deposited funds. A
depositary bank typically receives credit on checks within one
or two days following deposit. It receives credit on cash
deposits, electronic payments, and checks that are drawn on
itself on the day the cash, check, or electronic payment is
received. And if a nonproprietary ATM is involved, it usually
receives credit on the day the bank that operates the ATM
credits the depositary bank for the amount of deposit.
A depositary bank may rely on the availability schedule of its
Federal Reserve Bank, FHLB, or correspondent bank when
determining when the depositary bank receives credit (section
229.14(a)(1)). If availability is delayed beyond the time
specified in that schedule, a bank may charge back to the
account any interest erroneously paid or accrued on the basis
of that schedule.
A depositary bank may accrue interest on checks deposited to
all of its interest-bearing accounts based on an average of
when the bank receives credit for all checks sent for payment
or collection (section 229.14(a)(2)). For example, if a bank
receives credit on 20 percent of the funds deposited by check
on the business day of deposit (such as via on-us checks), 70
percent on the business day following deposit, and 10 percent
on the second business day following deposit, the bank may
apply these percentages to determine the day on which interest
must begin to accrue for check deposits into all interest bearing accounts, regardless of when the bank received credit
for deposits into any particular account. Consequently, a bank
may begin accruing interest uniformly across all interest bearing accounts rather than having to track the type of check
deposited to each account.
Nothing in the general rule limits a depositary bank policy that
provides that interest may accrue only on balances that exceed
a specified amount or on the minimum balance maintained in
the account during a given period. However, the balance must
be determined according to the date the bank receives credit
for the funds. Nor is there a limit on a policy that provides
that interest may accrue sooner than required by the
regulation.
Money market deposit accounts, savings deposit
accounts, and time deposit accounts are not subject to
the general rule concerning the timing of interest
payment. However, for simplicity of operation, a bank
may accrue interest on such deposits in the same manner
that it accrues interest on transaction accounts.
What is the Payment of Interest – §229.14 Exemption for Certain Credit Unions (§ 229.14(b))? [VI - 1.1]
Exemption for Certain Credit Unions (§ 229.14(b))
Credit unions that do not begin to accrue interest or
dividends on their members’ accounts until a date later
than the day the credit union receives credit for those
deposits, including cash deposits, are exempt from the
general rule for payment of interest (section 229.14(a))
as long as they provide notice of their interest-accrual
policies in accordance with section 229.16(d).
What is the Payment of Interest – §229.14 Exception for Checks Returned Unpaid (§ 229.14(c))? [VI - 1.1]
Exception for Checks Returned Unpaid (§ 229.14(c))
Banks are not required to pay interest on funds deposited
in an interest-bearing account by a check that has been
returned unpaid, regardless of the reason for return.
What are the General Disclosure Requirements – §229.15 - Form of Disclosures (§ 229.15(a))? [VI - 1.1]
General Disclosure Requirements – §229.15
Form of Disclosures (§ 229.15(a))
A bank must disclose its funds availability policy to its
customers. The disclosures must be clear and
conspicuous and must be in writing. Disclosures other
than those posted at locations where employees accept
consumer deposits, at ATMs, or on preprinted deposit
slips must be in a form that customers can keep. They
must be grouped together and must not contain
information unrelated to the requirements of Regulation
CC. If other account terms are included in the same
document, disclosures related to the regulation should be
highlighted, for example, by having a separate heading
What are the General Disclosure Requirements – §229.15 -Uniform Reference to Day of Availability (§ 229.15(b))? [VI - 1.1]
Uniform Reference to Day of Availability (§ 229.15(b))
In its disclosure, the bank must describe funds as being
available for withdrawal on ‘‘the _____ business day
after’’ the day of deposit. In this calculation, the first
business day is the business day following the banking
day the deposit was received, and the last business day is
the day on which the funds are made available.
What are the General Disclosure Requirements – §229.15 - Multiple Accounts and Multiple Account Holders (§229.15(c)) ? [VI - 1.1]
Multiple Accounts and Multiple Account Holders (§
229.15(c))
A bank is not required to give multiple disclosures to
customers who have more than one account if the accounts are
subject to the same availability policies. Nor is a bank required
to give separate disclosures to joint account holders. A single
disclosure to one of the holders of the joint account is
sufficient.
What are the General Disclosure Requirements – §229.15 - Dormant or Inactive Accounts (§ 229.15(d)) ? [VI - 1.1]
Dormant or Inactive Accounts (§ 229.15(d))
A bank is not required to give disclosures to customers who
have dormant or inactive accounts.
What are the Specific Availability Policy Disclosure – §229.16 Requirements? [VI - 1.1]
Specific Availability Policy Disclosure – §229.16
The disclosure describing its funds availability policy that a
bank must provide to its customers must reflect the policy
followed by the bank in most cases. If the bank wishes to
reserve its right to impose longer delays on a case-by-case
basis or by invoking one of the exceptions specified in section
229.13, its policy regarding these situations must be reflected
in the disclosure
What are the Disclosure Requirements for Content of Specific Availability Policy? (§229.16(b)) [VI - 1.1]
Content of Specific Availability Policy Disclosure (§
229.16(b))
A bank’s specific availability policy disclosure must include,
as applicable, the following:
* A summary of the bank’s availability policy
* A description of the categories of deposits or
checks used by the bank when it delays availability,
such as local checks; how to determine the category
to which a particular deposit or check (such as a
payable-through draft) belongs; and when each
category will be available for withdrawal (including
a description of the bank’s business days and when
a deposit is considered received)
* A description of any of the exceptions specified in
section 229.13 that may be invoked by the bank,
including the time at which the deposited funds
generally will become available for withdrawal and
a statement that the bank will notify the customer if
the bank invokes one of the exceptions
* A description of any case-by-case policy of
delaying availability that may result in deposited
funds being available for withdrawal later than the
time periods stated in the bank’s availability policy
(specific requirements are laid out in section
229.16(c)(1))
How must a bank disclosure a practice of invoking Longer Delays on a Case-by-Case Basis (§ 229.16(c)) [VI - 1.1]
Longer Delays on a Case-by-Case Basis (§ 229.16(c))
A bank that has a policy of making deposited funds available
for withdrawal sooner than required may extend the time
when funds are available up to the time periods allowed
under the regulation on a case-by-case basis. However, the
bank must include the following in its specific policy
disclosure:
* A statement that the time when deposited funds are
available for withdrawal may be extended in some
cases, and a statement of the latest time deposited
funds will be available for withdrawal
* A statement that the bank will notify the customer if
funds deposited in the customer’s account will not
be available for withdrawal until after the time
periods stated in its availability policy
* A statement that customers should ask if they need
to know when a particular deposit will be available
for withdrawal
When a depositary bank extends the time that funds will be
available for withdrawal on a case-by-case basis, it must
provide the depositor with a written notice. The notice must
include all of the following information:
* The customer’s account number
* The date of the deposit
* The amount of the deposit that is being delayed
* The day the funds will be available for withdrawal
The notice must be provided at the time of the deposit, unless
the deposit was not made in person to an employee of the
depositary bank or the decision to delay availability was
made after the time of the deposit. If notice is not given at the
time of the deposit, the depositary bank must mail or deliver
the notice to the customer no later than the first business day
following the banking day the deposit was made.
A depositary bank that extends the time when funds will be
available for withdrawal on a case-by- case basis and does
not furnish the depositor with written notice at the time of
deposit may not assess any fees for any subsequent overdrafts
(including use of a line of credit) or return of checks or other
debits to the account if
* The overdraft or return of the check or other debit
would not have occurred except for the fact that the
deposited funds were delayed under section
229.16(c)(1) of the regulation and
* The deposited check was paid by the paying bank.
However, the depositary bank may assess an overdraft or
returned-check fee if it includes a notice concerning overdraft
and returned-check fees with the disclosure required in section
229.16(c)(2) and, when required, refunds any such fees upon
the request of the customer. The overdraft and returned-check
notice must state that the customer may be entitled to a refund
of overdraft or returned-check fees that are assessed if the
check subject to the delay is paid, and also must state how to
obtain a refund.
What is the disclosure requirement related to Credit Union Notice of Interest-Payment Policy (§ 229.16(d)) [VI - 1.1]
Credit Union Notice of Interest-Payment Policy (§ 229.16(d))
If a credit union begins to accrue interest or dividends on all
deposits made into an interest-bearing account, including cash
deposits, at a later time than the day specified in section
229.14(a), the credit union’s specific policy disclosures must
explain when interest or dividends on deposited funds will
begin to accrue.
What are the EFAA Initial Disclosures – §229.17 Requirements? [VI - 1.1]
Initial Disclosures – §229.17
A bank must provide potential customers with the disclosures
described in section 229.16 before an account is opened.
What are the Additional Disclosure Requirements – §229.18 - regarding Deposit Slips (§ 229.18(a))? [VI - 1.1]
Deposit Slips (§ 229.18(a))
All preprinted deposit slips given to customers must include a
notice that deposits may not be available for immediate
withdrawal.
What are the Additional Disclosure Requirements – §229.18 - regarding Locations Where Employees Accept Consumer Deposits (§229.18(b))? [VI - 1.1]
Locations Where Employees Accept Consumer Deposits (§
229.18(b))
A bank must post, at a conspicuous place at each location
where its employees receive deposits to consumer accounts, a
notice that sets forth the time periods applicable to the
availability of funds deposited.
What are the Additional Disclosure Requirements – §229.18 - regarding Automated Teller Machines (§ 229.18(c)) ? [VI - 1.1]
Automated Teller Machines (§ 229.18(c))
At each of its ATM locations, a depositary bank must post or
provide a notice that funds deposited in the ATM may not be
available for immediate withdrawal. A depositary bank that
operates an off-premises ATM from which deposits are
removed not more than two times each week, as described in
section 229.19(a)(4), must disclose at or on the ATM the days
on which deposits made at the ATM will be considered
received.
What are the Additional Disclosure Requirements – §229.18 - regarding Upon Request (§ 229.18(d)) Disclosures? [VI - 1.1]
Upon Request (§ 229.18(d))
A bank must provide a copy of its specific availability
policy disclosure (described in section 229.16) to any
person who requests it.
What are the Additional Disclosure Requirements – §229.18 - regarding Changes in Policy (§ 229.18(e))? [VI - 1.1]
Changes in Policy (§ 229.18(e))
Thirty days before implementing a change in its
availability policy, a bank must send notification of the
change to all account holders adversely affected by the
change. Changes that result in faster availability may be
disclosed no later than thirty days after implementation.
When Funds Are Considered Deposited (§ 229.19(a)) under Miscellaneous Provisions – §229.19? [VI - 1.1]
Miscellaneous Provisions – §229.19
When Funds Are Considered Deposited (§ 229.19(a))
For purposes of subpart B of Regulation CC (sections
229.10–229.21), the time at which funds must be made
available for withdrawal is measured from the day the
funds are considered deposited (or ‘‘received’’ by the
bank). When funds are considered officially deposited
differs according to where, how, and when they are
deposited:
- Funds deposited at a staffed teller station or an
ATM—Considered deposited when received by the
teller or placed in the ATM. - Funds mailed to the depositary bank— Considered
deposited on the banking day they are received by
the depositary bank; in this case, funds are considered ‘‘received’’ at the time the mail is
delivered to the bank, even if it is initially delivered
to a mail room rather than the check-processing area. - Funds deposited at a night depository— Considered
deposited on the banking day the funds are removed
from the night depository and are accessible to the
depositary bank for processing. For example, some
businesses deposit their funds in a locked bag at the
night depository late in the evening and return to the
bank the following day to open the bag; others have
an agreement with the bank that the deposit bag must
be opened under the dual control of the bank and the
depositor. In both cases, the funds are considered
deposited when the customer returns to the bank and
opens the deposit bag. - Funds deposited through a lock box arrangement—
Considered deposited on the day the funds are
removed from the lock box and are accessible to the
depositary bank for processing. A lock box is a post
office box that is typically used by a corporation for
the collection of bill payments or other check
receipts. - Funds deposited at off-premises ATMs that are not
serviced more than twice a week— Considered
deposited on the day they are removed from the
ATM. This special provision is geared toward banks
whose practice is to service remote ATMs
infrequently. A depositary bank that uses this
provision must post a notice at the ATM informing
depositors that funds deposited at the ATM may not
be considered received on the date of deposit. - Funds deposited on a day the depositary bank is
closed or after the bank’s cutoff hour—May be
considered deposited on the next banking day.
What are Cutoff Hours under Miscellaneous Provisions – §229.19? [VI - 1.1]
Cutoff Hours
Generally, a bank may establish a cutoff hour of 2:00 p.m. or
later for receipt of deposits at its main office or branch offices
and a cutoff hour of 12:00 noon or later for deposits made at
ATMs, lock boxes, night depositories, or other off-premises
facilities. (As specified in the commentary to section
229.19(a), the 12:00 noon cutoff time relates to the local time
at the branch or other location of the depositary bank where
the account is maintained or the local time at the ATM or off premises facility.)
Different cutoff hours may be established for different types
of deposits—for example, a 2:00 p.m. cutoff for receipt of
check deposits and a later time for receipt of wire transfers is
permissible. Location can also play a role in the establishment
of cutoff hours; for example, different cutoff hours may be
established for ATM deposits and over-the- counter deposits,
or for different teller stations at the same branch. With the Cutoff Hours
Generally, a bank may establish a cutoff hour of 2:00 p.m. or
later for receipt of deposits at its main office or branch offices
and a cutoff hour of 12:00 noon or later for deposits made at
ATMs, lock boxes, night depositories, or other off-premises
facilities. (As specified in the commentary to section
229.19(a), the 12:00 noon cutoff time relates to the local time
at the branch or other location of the depositary bank where
the account is maintained or the local time at the ATM or offpremises facility.)
Different cutoff hours may be established for different types
of deposits—for example, a 2:00 p.m. cutoff for receipt of
check deposits and a later time for receipt of wire transfers is
permissible. Location can also play a role in the establishment
of cutoff hours;for example, different cutoff hours may be
established for ATM deposits and over-the- counter deposits,
or for different teller stations at the same branch. With the
What is the Hour of Funds Availability (§ 229.19(b)) under Miscellaneous Provisions – §229.19? [VI - 1.1]
Hour of Funds Availability (§ 229.19(b))
Generally, funds must be available for withdrawal by 9:00
a.m. or the time a depositary bank’s teller facilities, including
ATMs, are available for customer account withdrawals,
whichever is later. (Under certain circumstances, there is a
special exception for cash withdrawals—see section
229.12(d).) Thus, if a bank has no ATMs and its branch
facilities are available for customer transactions beginning at
10:00 a.m., funds must be available for withdrawal by 10:00
a.m. If a bankhas 24-hour ATM service, funds must be
available for ATM withdrawals by 9:00 a.m.
The start of business is determined by the local time at the
branch or depositary bank holding the account. For example,
if funds in an account at a West Coast bank are first made
available at the start of business on a given day and a
customer attempts to withdraw the funds at an East Coast
ATM, the depositary bank is not required to make funds
available until 9:00 a.m. West Coast time (12:00 noon East
Coast time).
What are the Effects of the Regulation on Depositary Bank Policies (§229.19(c)) under Miscellaneous Provisions – §229.19? [VI - 1.1] [VI - 1.1]
Effects of the Regulation on Depositary Bank Policies (§
229.19(c))
Essentially, a depositary bank is permitted to provide
availability to its customers in a shorter time than that
prescribed in the regulation. The bank may also adopt
different funds availability policies for different segments of
its customer base, so long as each policy meets the schedules
in the regulation. For example, it may differentiate between
its corporate and consumer customers, or may adopt different
policies for its consumer customers based on whether a
customer has an overdraft line of credit associated with his or
her account.
The regulation does not affect a depositary bank’s right to
accept or reject a check for deposit, to ‘‘charge back’’ the
customer’s account for the amount of a check based on the
return of the check or receipt of a notice of nonpayment of the
check, or to claim a refund for any credit provided to the
customer.
Nothing in the regulation requires a depositary bank to have
its facilities open for customers to make withdrawals at
specified times or on specific days. For example, even
though the special cash withdrawal rule set forth in section
229.12(d) states that a bank must make up to $450 available
for cash withdrawals no later than 5:00 p.m. on specific
business days, if a bank does not participate in an ATM
system and does not have any teller windows open at or after
5:00 p.m., the bank need not join an ATM system or keep
offices open. In this case, the bank complies with the rule if
the funds that are required to be available for cash withdrawal at 5:00 p.m. on a particular day are available for
withdrawal at the start of business on the following day.
Similarly, if a depositary bank is closed for customer
transactions, including ATM transactions, on a day on which
funds must be made available for withdrawal, the regulation
does not require the bank to open.
If a bank has a policy of limiting cash withdrawals at ATMs
to $250 a day, the regulation does not require that the bank
dispense $400 of the proceeds of the customer’s deposit that
must be made available for cash withdrawal on that day.
Some small banks do not keep cash on their premises and do
not offer cash withdrawal services to their customers. Others
limit the amount of cash on their premises, for reasons
related to bonding, and as a result reserve the right to limit
the amount of cash a customer may withdraw on a given day
or to require advance notice for large cash withdrawals.
Nothing in the regulation is intended to prohibit these
practices if they are applied uniformly and are based on
security, operating, or bonding requirements and if the policy
is not dependent on the length of time the funds have been in
the customer’s account, as long as the permissible hold has
expired. However, the regulation does not authorize such
policies if they are otherwise prohibited by statutory,
regulatory, or common law.
What is the Calculated Availability for Non-consumer Accounts (§
229.19(d)) under Miscellaneous Provisions – §229.19? [VI - 1.1] [VI - 1.1]
Calculated Availability for Nonconsumer Accounts (§
229.19(d))
Under calculated availability, a specified percentage of funds
from check deposits may be made available to the customer on
the next business day, with the remaining percentage deferred
until subsequent days. The determination of the percentage of
deposited funds that will be made available each day is based
on the customer’s typical deposit mix as determined by a
sample of the customer’s deposits. Use of calculated
availability is permitted only if, on average, the availability
terms that result from the sample are equivalent to or more
prompt than the requirements of the regulation.
What are holds on Other Funds (§ 229.19(e)) under Miscellaneous Provisions – §229.19? [VI - 1.1] [VI - 1.1]
Holds on Other Funds (§ 229.19(e))
If a customer deposits a check, the bank may place a hold on
any of the customer’s funds to the extent that the funds held do
not exceed the amount of the check deposited and if the total
amount of funds held are made available for withdrawal within
the times required in the regulation. For example, if a
customer cashes a check (other than an on-us check) over-thecounter, the depositary bank may place a hold on any of the
customer’s funds to the extent that the funds held do not
exceed the amount of the check cashed.
What are the Employee Training and Compliance (§ 229.19(f)) requirements
under Miscellaneous Provisions – §229.19? [VI - 1.1] [VI - 1.1]
Employee Training and Compliance (§ 229.19(f))
The EFA Act requires banks to inform each employee who
performs duties subject to the act about its requirements. The act and Regulation CC also require banks to establish and maintain procedures designed to ensure and monitor employee compliance with the requirements.
What are the Effects of Mergers (§ 229.19(g)) under Miscellaneous Provisions – §229.19? [VI - 1.1]
Effects of Mergers (§ 229.19(g))
Merged banks may be treated as separate banks for a
period of up to one year after consummation of the
merger transaction. However, a customer of any bank
that is a party to the merger transaction and has an
established account with the merging bank may not be
treated as a new account holder under the new-account
exception of section 229.13(a). A deposit in any branch
of the merged bank is considered deposited in the bank
for purposes of the availability schedules in accordance
with section 220.19(a).
This rule affects the status of the combined entity in a
number of areas, for example,
* When the resulting bank is a participant in a
check clearinghouse association
* When an ATM is a proprietary ATM
* When a check is drawn on a branch of the
depositary bank
What are the General Rule (§ 229.20(a)) in Relation to State Law – §229.20 [VI - 1.1]
Relation to State Law – §229.20
General Rule (§ 229.20(a))
If a state has a shorter hold for a certain category of
checks than is provided for under federal law, the state
requirement supersedes the federal provision.
The EFA Act also indicates that any state law providing
availability in a shorter period of time than required by
federal law is applicable to all federally insured banks in
that state, including federally chartered banks. If a state
law provides shorter availability only for deposits in
accounts in certain categories of banks, such as
commercial banks, the superseding state law continues
to apply to only those categories of banks, rather than to
all federally insured banks in the state.
12 CFR 229.20(a) is applicable to state laws or
regulations in effect on or before September 1, 1989.
What is the Preemption of Inconsistent Law (§ 229.20(b)) in Relation to State Law – §229.20 [VI - 1.1]
Preemption of Inconsistent Law (§ 229.20(b))
Provisions of state laws that are inconsistent with federal
law, other than those discussed in the preceding section
(‘‘General Rule’’), are preempted. State laws requiring
disclosure of availability policies for transaction
accounts are preempted by Regulation CC. Preemption
does not require a determination by the Federal Reserve
Board to be effective.
Preemption of Inconsistent Law (§ 229.20(b))
Provisions of state laws that are inconsistent with federal
law, other than those discussed in the preceding section
(‘‘General Rule’’), are preempted. State laws requiring
disclosure of availability policies for transaction
accounts are preempted by Regulation CC. Preemption
does not require a determination by the Federal Reserve
Board to be effective.
What are the Statutory Penalties (§ 229.21(a)) under Civil Liability – §229.21 [VI - 1.1]
Statutory Penalties (§ 229.21(a))
Statutory penalties can be imposed as a result of a successful
individual or class action suit brought for violations of subpart
B of Regulation CC. Basically, a bank can be held liable for
* Actual damages,
* No less than $100 nor more than $1,000 in the case
of an individual action,
* The lesser of $500,000 or 1 percent of the net worth
of the bank involved in the case of a class action, and
* The costs of the action, together with reasonable
attorney’s fees as determined by the court.
These penalties also apply to provisions of state law that
supersede provisions of the regulation, such as requirements
that funds deposited in accounts at banks be made available
more promptly than required by the regulation, but they do not
apply to other provisions of state law. (See commentary in
appendix E, section 229.20.)
What is the liability for Bona Fide Errors (§ 229.21(c)) under Civil Liability – §229.21 [VI - 1.1]
Bona Fide Errors (§ 229.21(c))
A bank will not be considered liable for violations of
Regulation CC if it can demonstrate, by a preponderance of
evidence, that violations resulted from bona fide errors and
that it maintains procedures designed to avoid such errors
What is the Reliance on Federal Reserve Board Rulings (§ 229.21(e)) under Civil Liability – §229.21 [VI - 1.1]
Reliance on Federal Reserve Board Rulings (§ 229.21(e))
A bank will not be held liable if it acts in good faith in reliance
on any rule, regulation, model form (if the disclosure actually
corresponds to the bank’s availability policy), or interpretation
of the Board, even if that rule, regulation, form, or
interpretation is subsequently determined to be invalid. Banks
may rely on the commentary as well as on the regulation itself.
What are the Exclusions (§ 229.21(f)) under Civil Liability – §229.21 [VI - 1.1]
Exclusions (§ 229.21(f))
The liability established by section 229.21 does not apply to
violations of subpart C (Collection of Checks) of Regulation
CC or to actions for wrongful dishonor of a check by a
paying bank’s customer. (Separate liability provisions
applying to subpart C are found in section 229.38.)
What is Subpart C - Collection of Checks under the EFAA? [VI - 1.1]
Subpart C – Collection of Checks
Subpart C covers the check-collection system and includes
rules to speed the collection and return of checks. Basically,
these rules cover the return responsibilities of paying and
returning banks, notices of non-payment for large-dollar
returns by the paying bank, and mandatory check
indorsement standards. Electronic checks and electronic
returned checks are subject to subpart C as if they were
checks or returned checks, except where “paper check” or
“paper returned check” is specified. Many of the provisions
of subpart C can be varied by agreement.
Sections 229.30 and 229.31 generally require paying and
returning banks to return checks expeditiously using a ‘‘two day’’ test. Under the two-day test, a return is considered
expeditious if a local check is received by the depositary
bank by 2:00 p.m. (local time of the depositary bank) of the
second business day after presentment. Pursuant to section
229.33(a), a paying bank and returning bank may be liable to
a depositary bank for failing to return a check in an
expeditious manner only if the depositary bank has
arrangements in place such that the paying bank or returning
bank could return a returned check electronically, directly or
indirectly, by commercially reasonable means.
Section 229.31(c) also generally requires a paying bank to
provide timely notification of nonpayment if it determines
not to pay a check of $5,000 or more, regardless of the
channel of collection. The regulation addresses the
depositary bank’s duty to notify its customers that a check is
being returned and the paying bank’s responsibility for
giving notice of nonpayment.
Other areas that are covered in subpart C are indorsement
standards, warranties and indemnities by paying and
returning banks, bona fide errors and liability, variations by
agreement, insolvency of banks, and the effect of merger
transactions.
The provisions of subpart C, supersede any state law, but
only to the extent that state law is inconsistent with
Regulation CC. (Section 229.41)
The expeditious return requirements and other specified
requirements in subpart C do not apply to checks drawn on the
U.S. Treasury, USPS money orders, and checks drawn on
states and units of general local government that are presented
directly to the state or units of general local government and
that are not payable through or at a bank. (Section 229.42)
What is Subpart D - Collection of Checks under the EFAA? [VI - 1.1]
Subpart D – Substitute Checks
General Provisions Governing Substitute Checks – §229.51
A substitute check for which a bank has provided the
warranties described in section 229.525 is the legal equivalent
of an original check if the substitute check:
* Accurately represents all of the information on the
front and back of the original check 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.’’ 6
The reconverting bank must adhere to Regulation CC’s
standards for preserving bank indorsements and
identifications. A reconverting bank that receives
consideration for a substitute check that it transfers, presents,
or returns is also the first bank to provide the warranties
described in section 229.52 and the indemnity described in
section 229.53.
Substitute Check Warranties and Indemnity – §§229.52
and 229.53 [VI - 1.1]
Substitute Check Warranties and Indemnity – §§229.52
and 229.53
Starting with the reconverting bank, any bank that transfers,
presents, or returns a substitute check (or a paper or electronic
representation of a substitute check) and receives
consideration for that check warrants that the substitute check
meets the legal-equivalence requirements and that a check that
has already been paid will not be presented for subsequent
payment.
Such a bank also provides an indemnity to cover losses that
the recipient and any subsequent recipient of the substitute
check (or paper or electronic representation of a substitute
check) incurred because of the receipt of a substitute check
instead of the original check.
A bank that rejects a check submitted for deposit and returns
to its customer a substitute check (or paper or electronic
representation of a substitute check) makes these warranties
and indemnifications regardless of whether the bank received
consideration.
5
A person other than a bank that creates a substitute check could
transfer that check only by agreement unless and until a bank provides
the substitute check warranties.
6
A bank may not vary the language of the legal-equivalence legend.
What are Expedited Recredits for Consumers – §229.54 under Subpart D? [VI - 1.1]
Expedited Recredit for Consumers – §229.54
Section 229.54(a) sets forth the conditions under which a
consumer may make an expedited recredit claim for losses
associated with the consumer’s receipt of a substitute check.
To use the expedited recredit procedure, the consumer must be
able to assert in good faith that
* The consumer’s account was charged for a substitute check that was provided to the consumer,
* The consumer’s account wasimproperly
charged or the consumer has a warranty claim,
* The consumer suffered a loss, and
* The consumer needs the original check or a
sufficient copy to determine the validity of the
claim.
To make a claim, the consumer must comply with the
timing, content, and form requirements in section
229.54(b). This section generally provides that a
consumer’s claim must be received by the bank that
holds the consumer’s account no later than the fortieth
calendar day after the later of
* The calendar day on which the bank mailed (or
delivered by a means agreed to by the
consumer) the periodic statement describing
the contested transaction or
* The calendar day on which the bank mailed (or
delivered by a means agreed to by the
consumer) the substitute check itself.
Section 229.54(b)(1)(ii) requires the bank to give the
consumer an additional, reasonable period of time if the
consumer experiences ‘‘extenuating circumstances’’ that
prevent timely submission of the claim.
The commentary to section 229.60 provides that the
bank may voluntarily give the consumer more time to
submit a claim than the rule allows.
Under section 229.54(b)(2)(ii), a complaint is not
considered complete, and thus does not constitute a
claim, until it contains all of the required information the
rule requires. The rule requires that the claim contain7
* A description of why the consumer believes
the account was improperly charged or the
nature of the consumer’s warranty claim,
* A statement that the consumer has suffered a
loss, and an estimate of the amount of the loss,
* A reason why the original check (or a copy of
the check that is better than the substitute
check the consumer already received) is
necessary to determine whether the consumer’s
claim is valid, and
* Sufficient information to allow the bank to
identify the substitute check and investigate the
claim.
A bank, at its discretion, may require the consumer to
submit the claim in writing. If a consumer makes an oral
claim to a bank that requires a written claim, the bank
must inform the consumer of the written requirement at
that time. Under those circumstances, the bank must
receive the written claim by the later of 10 business days
from the date of an oral claim or the expiration of the
consumer’s initial 40-day period for submitting a timely
claim. Aslong asthe original oral claim fell within the
40-day requirement for notification and a complete
written claim was received within the additional 10-day
window, the claim meets the timing requirements
(sections 229.54(b)(1) and 229.54(b)(3)), even if the
written claim was received after the expiration of the
initial 40-day period.
What action must banks take on claims under Subpart D? [VI - 1.1]
Bank’s Action on Claims
Section 229.54(c) requires a bank to act on a consumer’s
claim no later than the tenth business day after the banking
day on which it received the consumer’s claim:
* If the bank determines that the consumer’s claim is
valid, it must recredit the consumer’s account no later
than the end of the business day after the banking day
on which it makes that determination. The amount of
the recredit should equal the amount of the
consumer’s loss, up to the amount of the substitute
check, plus interest on that amount if the account is
an interest-bearing account. The bank must then
notify the consumer of the recredit using the notice
discussed below (‘‘Notices Relating to Expedited
Recredit Claims’’).
* If the bank determines that the consumer’s claim is
invalid, it must notify the consumer of that decision
using the notice discussed below (‘‘Notices Relating
to Expedited Recredit Claims’’).
* If the bank has not determined the validity of the
consumer’s claim by the tenth business day after the
banking day on which it received the claim, the bank
must recredit the consumer’s account for the amount
of the consumer’s loss, up to the amount of the
substitute check or $2,500, whichever is less. The
bank must also recredit interest on that amount if the
consumer’s account is an interest-bearing account.
The bank must send a notice to that effect to the
consumer using the notice discussed below
(‘‘Notices Relating to Expedited Recredit Claims’’).
If the consumer’s loss was more than $2,500, the
bank has until the end of the forty-fifth calendar day
from the date of the claim to recredit any remaining
amount of the consumer’s loss, up to the amount of
the substitute check (plus interest), unless it
determines prior to that time that the claim was
invalid and notifies the consumer of that decision.
Section 229.54(d) generally requires that recredited funds
receive next-day availability. However, a bank that
provisionally recredits funds pending further investigation
may invoke safeguard exceptions to delay availability of the
recredit under the limited circumstances described in section
229.54(d)(2). The safeguard exceptions apply to new accounts
and repeatedly overdrawn accounts and also when the bank
has reasonable cause to suspect that the claim is fraudulent. A
bank may delay availability of a provisionally recredited
amount until the start of the earlier of (1) the business day
after the banking day on which the bank determines that the
consumer’s claim is valid or (2) the forty-fifth calendar day
after the banking day on which the bank received the claim if
the account is new, the account is overdrawn, or the bank has
reasonable cause to believe that the claim is fraudulent. When
the bank delays availability under this section, it may not
impose overdraft fees on checks drawn against the
provisionally credited funds until the fifth calendar day after
the day on which the bank sent the notice regarding the
delayed availability.
If, after providing the recredit, the bank determines that the
consumer’s claim was invalid, the bank may reverse the
recredit. This reversal must be accompanied by a consumer
notification using the notice discussed below (‘‘Notices
Relating to Expedited Recredit Claims’’).
What are the Notices Relating to Expedited Recredit Claims under Subpart D? [VI - 1.1]
Notices Relating to Expedited Recredit Claims
Section 229.54(e) outlines the requirements for providing
consumer notices related to expedited recredit:
* The bank must send the notice of recredit no later
than the business day after the banking day on
which the bank recredits the consumer’s account.
The notice must include the amount of the recredit
and the date the recredited funds will be available
for withdrawal.
* The bank must send notice that the consumer’s
claim is not valid no later than the business day
after the banking day on which the bank makes this
determination. The notice must include the original
check or a sufficient copy of it (except as provided
in section 229.58; see below). Also, it must
demonstrate to the consumer why the claim is not
valid. Further, the notice must include either any
information or document that the bank used in
making its determination or an indication that the
consumer may request copies of this information.
* The bank must send the notice of a reversal of
recredit no later than the business day after the
banking day on which the bank made the reversal.
The notice must include all the information required
in a notice of invalid claim plus the amount
(including interest) and date of the reversal (section
229.54(e)(3)(i)).
Appendix C to Regulation CC contains model forms that a
bank may use to craft the various notices required in section
229.54(e). The Board published these models to assist banks in
complying with section 229.54(e). Appropriate use of the
models, however, does not offer banks a statutory safe harbor.
What is the Expedited Recredit for Banks – §229.55 under Subpart D? [VI - 1.1]
Expedited Recredit for Banks – §229.55
Section 229.55 sets forth expedited recredit procedures
applicable between banks. A claimant bank must adhere to the
timing, content, and form requirements of section 229.55(b) in
order for the claim to be valid. A bank against which an
interbank recredit claim is made has ten business days within
which to act on the claim (section 229.55(c)). The provisions
of section 229.55 may be varied by agreement. (No other
provisions of subpart D may be varied by agreement.)
What is the Liability under Subpart D? [VI - 1.1]
Liability – §229.56
Section 229.56 describes the damages for which a bank or
person would be liable in the event of breach of warranty or
failure to comply with subpart D:
* The amount of the actual loss, up to the amount of
the substitute check, resulting from the breach or
failure and
* Interest and expenses (including costs, reasonable
attorney’s fees, and other expenses of representation)
related to the substitute check.
These amounts could be reduced in the event of negligence
or failure to act in good faith. It is also important to note that
section 229.56 contains a specific exception that allows for
greater recovery as provided in the indemnity section. Thus, a
person who has an indemnity claim that also involves a breach
of a substitute check warranty could recover all damages
proximately caused by the warranty breach.
Section 229.56(b) excuses failure to meet this subpart’s time
limits because of circumstances beyond a bank’s control.
Section 229.56(c) provides that an action to enforce a claim
under this subpart may be brought in any U.S. district court.
Section 229.56(c) also provides the subpart’s statute of
limitations: one year from the date on which a person’s cause
of action accrues.8 Section 229.56(d) states that if a person
fails to provide notice of a claim for more than thirty days
from the date on which a cause of action accrues, the
warranting or indemnifying bank is discharged from liability
to the extent of any loss caused by the delay in giving notice of
the claim.
8
For purposes of this paragraph, a cause of action accrues as of the date
on which the injured person first learns, or reasonably should have
learned, of the facts giving rise to the claim, including the identity of
the warranting or indemnifying bank against which the action is
brought.
What are the Content Requirements for Consumer Awareness under Subpart D? [VI - 1.1]
Consumer Awareness – §229.57
Content requirements
A bank must provide its consumer customers with a
disclosure that explains that a substitute check is the
legal equivalent of the original check and describes the
consumer’s recredit rights for substitute checks. A bank
may use, but is not required to use, the Board’s model
form (in appendix C to Regulation CC) to meet the
content requirements for this notice. A bank that uses
the model form appropriately is deemed compliant with
the content requirements for which it uses language from
the model form. A bank may provide the notice required
by section 229.57 along with other information.
What are the Distribution to Consumer Customers Who Receive Canceled
Checks with Periodic Account Statement Consumer Awareness requirements under Subpart D? [VI - 1.1]
Distribution to Consumer Customers Who Receive Canceled
Checks with Periodic Account Statements
Under section 229.57(b)(1), a bank must provide this
disclosure to existing consumer customers who routinely
receive their canceled checks in their periodic statement
no later than the first statement after October 28, 2004.
For customer relationships established after that date, a
bank must provide the disclosure to a new consumer
customer who will routinely receive canceled checks in
periodic statements at the time the customer relationship
is established.
What are the Distribution to Consumer Customers Who Receive a
Substitute Check Occasionally Consumer Awareness requirements under Subpart D? [VI - 1.1]
Distribution to Consumer Customers Who Receive a
Substitute Check Occasionally
Under section 229.57(b)(2), a bank must also provide
the disclosure to a consumer customer who receives a
substitute check on an occasional basis, including when
a consumer receives a substitute check in response to a
request for a check or a copy of a check and when a
check deposited by the consumer is returned to the
consumer as an unpaid item in the form of a substitute
check. A bank must provide the disclosure to a consumer
customer in these cases even if the bank previously
provided the disclosure to the consumer.
When the consumer contacts the bank to request a check
or a copy of a check and the bank responds by providing a
substitute check, the bank must provide this disclosure at
the time of the request, if feasible. Otherwise, the bank
must provide the disclosure no later than when the bank
provides a substitute check in response to the consumer’s
request. It would not be feasible to provide the disclosure
at the time of the request if, for example, the consumer made his or her request by telephone or if the bank did not
know at the time of the request whether it would provide
a substitute check or some other document in response. A
bank is not required to provide the disclosure if the bank
responds to the consumer’s request by providing
something other than an actual substitute check (such as a
photocopy of an original check or a substitute check).
When a bank returns a deposited item unpaid to a consumer in
the form of a substitute check, the bank must provide the
disclosure when it provides the substitute check.
What is the required Mode of Delivery of Information – §229.58 under Subpart D? [VI - 1.1]
Mode of Delivery of Information – §229.58
Section 229.58 provides that banks may deliver any notice or
other information required under this subpart by U.S. mail or
by any other means to which the recipient has agreed to
receive account information, including electronically. A bank
that is required to provide an original check or a sufficient
copy (each of which is defined as a specific paper document)
instead may provide an electronic image of the original check
or sufficient copy if the recipient has agreed to receive that
information electronically.
What are the funds availability schedules under EFAA [VI - 1.1]
See p. 25-36 of the manual
What is the Background of the Final Rule that protected covered federal benefits from being Garnished? [VI - 4.1]
Garnishment of Accounts Containing
Federal Benefit Payments
Introduction
Many consumers receive Federal benefit payments that are
protected under Federal law from being accessed or
“garnished” by creditors, other than the United States
government and certain State agencies, through a garnishment
order or similar written instruction issued by a court. Despite
these protections, developments in debt collection practices
and technology, including the direct deposit of benefits, have
led to an increase in the freezing of accounts containing
Federal benefit payments by financial institutions that receive
a garnishment order. As a result, the Department of the
Treasury (Fiscal Service), the Social Security Administration,
the Department of Veterans Affairs, the Railroad Retirement
Board, and the Office of Personnel Management have jointly
issued a rule1 (interagency regulation or regulation) that a
financial institution must follow when it receives a
garnishment order against an account holder who receives
certain Federal benefit payments by direct deposit.
What are the types of Federal benefit payments covered by the interagency
regulation? [VI - 4.1]
The types
of Federal benefit payments covered by the interagency
regulation are:
* Social Security benefits;
* Supplemental Security Income benefits;
* Veterans benefits;
* Federal Railroad retirement, unemployment and sickness
benefits;
* Civil Service Retirement System benefits; and
* Federal Employee Retirement System benefits.
What procedures are financial institutions required to follow under the regulation? [VI - 4.1]
The Federal banking agencies are responsible for enforcing
compliance with this regulation.2 Under the regulation,
generally, financial institutions that receive a garnishment
order are required to follow certain procedures, including the
following: (1) determine whether any account held by the
named account holder received exempt Federal payments by
direct deposit; (2) determine the sum of protected Federal
benefits deposited to each individual account during a two month period; and (3) ensure that the account holder has access to an amount equal to that sum or to the current balance of such account(s), whichever is lower.
When a financial institution receives a garnishment order, it
must first determine whether the order was obtained by the
United States or issued by a State child support enforcement agency.3 If so, the financial institution follows its customary
procedures for handling the order since Federal benefit
payments can generally be accessed or garnished by such
agencies.
If the garnishment order was not obtained by the United States
or issued by a State child support enforcement agency, the
financial institution must follow the interagency regulation to
protect Federal benefit payments directly deposited into a
consumer’s account during a two-month “lookback” period.
The interagency regulation contains provisions on the timing
of an account review, the determination of the protected
amount, notice to the account holder (including a model form)
regarding the garnishment order, and record retention. In
addition, the interagency regulation allows a financial
institution to rely on the presence of certain ACH identifiers
(i.e., character “XX” encoded in the appropriate positions of
the “Company Entry Description” field and the number “2” in
the “Originator Status Code” field of the Batch Header
Record) to determine whether a direct deposit payment is a
Federal benefit payment for purposes of the regulation.
1 Final rule published in the Federal Register on May 29, 2013. Effective June
28, 2013. 78 FR at 32099. Interim final rule published in the Federal Register
on February 23, 2011. Effective May 1, 2011. 76 FR at 9939.
2 The regulation specifically defines “Federal banking agency” to include: the
Federal Deposit Insurance Corporation, the Board of Governors of the Federal
Reserve System, the Office of the Comptroller of the Currency, and the
National Credit Union Administration. See 31 CFR 212.3.
The financial institution must notify the account holder that
the financial institution has received a garnishment order, if all
of the following conditions are met (AKA the financial institution can garnish funds when what conditions are met?): [VI - 4.1]
The financial institution must notify the account holder that
the financial institution has received a garnishment order, if all
of the following conditions are met: (1) a covered benefit
agency deposited a benefit payment into an account during the
lookback period; (2) the balance in the account on the date of
account review was above zero dollars and the financial
institution established a protected amount; and (3) there are
funds in the account in excess of the protected amount. For an
account containing a protected amount, the financial
institution may not charge or collect a garnishment fee against
the protected amount. The financial institution may charge or
collect a garnishment fee against additional funds deposited to
the account up to five business days after the account review
date.
What is the scope of the interagency regulation that governs garnishments? [VI - 4.1]
Scope (31 CFR 212.2)
The interagency regulation applies to financial institutions that
hold accounts into which the following benefits have
been directly deposited:
1. Social Security Administration
* Social Security benefits
* Supplemental Security Income benefits
2. Department of Veterans Affairs
* Veterans benefits
3. Railroad Retirement Board
* Federal Railroad retirement, unemployment and
sickness benefits
4. Office of Personnel Management
* Civil Service Retirement System benefits
* Federal Employee Retirement System benefits
3 A State child support enforcement agency is the single and separate
organizational unit in a State that has the responsibility for administering or
supervising the State’s plan for child and spousal support pursuant to Title IV,
Part D, of the Social Security Act, 42 U.S.C. 654. See 31 CFR 212.3.
What is the definition of “Account” under the interagency regulation that governs garnishments? [VI - 4.1]
“Account” means an account, including a master account or
subaccount, at a financial institution to which an electronic
payment may be directly routed.4
4 An account does not include an account to which a benefit payment is
subsequently transferred following its initial delivery by direct deposit to
another account. See 76 FR at 9950. If a payment recipient is assigned a
customer number that serves as a “prefix” for individual sub-accounts, the
individual sub-account (and not the “master account”) is subject to the
account review and lookback. See 78 FR at 32100.
What is the definition of “Account Holder” under the interagency regulation that governs garnishments? [VI - 4.1]
“Account holder” means a natural person against whom a
garnishment order is issued and whose name appears in a
financial institution’s records as the direct or beneficial owner
of an account.
What is the definition of “Account Review” under the interagency regulation that governs garnishments? [VI - 4.1]
“Account review” means the process of examining deposits
in an account to determine if a benefit agency has deposited a
benefit payment into the account during the lookback period.
What is the definition of a “Benefit Agency” under the interagency regulation that governs garnishments? [VI - 4.1]
“Benefit agency” means the Social Security Administration,
the Department of Veterans Affairs, the Railroad Retirement
Board, or the Office of Personnel Management.
What is the definition of a “Benefit Payment” under the interagency regulation that governs garnishments? [VI - 4.1]
“Benefit payment” means a Federal benefit payment referred
to in 31 CFR 212.2(b) paid by direct deposit to an account
with the character “XX” encoded in positions 54 and 55 of the
Company Entry Description field and the number “2” encoded
in the Originator Status Code field of the Batch Header Record
of the direct deposit entry. 5
5 For more information, see the Treasury Department’s “Guidelines for
Garnishment of Accounts Containing Federal Benefit Payments”
(https://www.fms.treas.gov/greenbook/Garnishment-Guideline-06-13.pdf).
What is the definition of a “Freeze” or “account freeze” under the interagency regulation that governs garnishments? [VI - 4.1]
“Freeze” or “account freeze” means an action by a financial
institution to seize, withhold, or preserve funds, or to
otherwise prevent an account holder from drawing on or
transacting against funds in an account, in response to a
garnishment order.
What is the definition of “Garnish” or “garnishment” under the interagency regulation that governs garnishments? [VI - 4.1]
“Garnish” or “garnishment” means execution, levy,
attachment, garnishment, or other legal process.
What is the definition of a “Garnishment fee” under the interagency regulation that governs garnishments? [VI - 4.1]
“Garnishment fee” means any service or legal processing fee,
charged by a financial institution to an account holder, for
processing a garnishment order or any associated withholding
or release of funds.
What is the definition of a “Garnishment order” or “order” under the interagency regulation that governs garnishments? [VI - 4.1]
“Garnishment order” or “order” means a writ, order,
notice, summons, judgment, levy, or similar written instruction
issued by a court, a State or State agency, a municipality or
municipal corporation, or a State child support enforcement agency, including a lien arising by operation of law for overdue child support or an order to freeze the assets in an account, to effect a garnishment against a debtor.
What is the definition of a Lookback period under the interagency regulation that governs garnishments? [VI - 4.1]
Lookback period means the two-month period that (a) begins
on the date preceding the date of account review and (b) ends
on the corresponding date of the month two months earlier, or
on the last date of the month two months earlier if the
corresponding date does not exist.
For example, under this definition, the lookback period that
begins on November 15 would end on September 15. On the
other hand, the lookback period that begins on April 30 would
end on February 28 (or 29 in a leap year), to reflect the fact
that there are not 30 days in February.
Other examples illustrating the application of this definition
are included in Appendix C of the interagency regulation.
What is the definition of “Protected amount” under the interagency regulation that governs garnishments? [VI - 4.1]
“Protected amount” means the lesser of:
1. The sum of all benefit payments posted to an account
between the close of business on the beginning date of the
lookback period and the open of business on the ending
date of the lookback period; or
2. The balance in an account when the account review is
performed.
6 The account balance includes intraday items such as ATM or cash
withdrawals. The balance does not include any line of credit associated with
the account. See 78 FR at 32101-32102.
What are the requirements for Initial Action upon Receipt of a Garnishment Order (31 CFR 212.4)? [VI - 4.1]
Initial Action upon Receipt of a Garnishment Order
(31 CFR 212.4)
Within two business days after receiving a garnishment order,
and prior to taking any other action related to the order, a
financial institution must determine whether the order was
obtained by the United States or issued by a State child
support enforcement agency.7 To make this determination, the
financial institution may rely on a “Notice of Right to Garnish
Federal Benefits” (see Appendix B of the interagency
regulation). For such orders obtained by the United States or
issued by a State child support enforcement agency, the
financial institution should not follow the interagency
regulation but instead should follow its customary procedures
for handling a garnishment order.
For all other garnishment orders, the financial institution is
required to follow the procedures in 31 CFR 212.5 and 212.6.
If a State law establishes a minimum protected amount before
a garnishment order can be applied, the financial institution
need not examine the order to determine if a Notice of Right to
Garnish Federal Benefits is attached or included, or take any
of the additional steps required under the rule.8
7 Financial institutions will not violate State law by utilizing the two-day
period, because the rule preempts any State requirement that an order be
processed on the day of receipt. See 78 FR at 32104
8 State law is not inconsistent with the interagency regulation if it protects
benefit payments in an account from being frozen or garnished at a higher
protected amount than required under the regulation. For further discussion on
preemption of State law (31 CFR 212.9), see “Comments and Analysis”
section in Part II of Supplementary Information of the final rule. See 78 FR at
32106-32107
8 State law is not inconsistent with the interagency regulation if it protects
benefit payments in an account from being frozen or garnished at a higher
protected amount than required under the regulation. For further discussion on
preemption of State law (31 CFR 212.9), see “Comments and Analysis”
section in Part II of Supplementary Information of the final rule. See 78 FR at
32106-32107.
What are the timing requirements of the account reviews? [VI - 4.1]
Account Review (31 CFR 212.5)
Timing of account review
After having been served a garnishment order issued against a
debtor, a financial institution must perform an account review:
1. No later than two business days following receipt of both
the garnishment order and sufficient information from the
creditor to determine whether the debtor is an account
holder; or
2. By a later date permitted by the creditor in situations where
the financial institution is served a batch of a large number
of orders. The date must be consistent with the terms of the
orders and the financial institution must maintain records
on such batches and creditor permissions, consistent with
31 CFR 212.11(b).
What are the account review procedures when there was No benefit payment deposited during lookback period? [VI - 4.1]
No benefit payment deposited during lookback period
If the account review shows that a benefit agency did not
deposit a benefit payment into the account during the lookback
period, then the financial institution should follow its
customary procedures for handling the garnishment order and
not the procedures in 31 CFR 212.6.
What are the account review procedures when there was a benefit payment deposited during lookback period? [VI - 4.1]
Benefit payment deposited during lookback period
If the account review shows that a benefit agency deposited a
benefit payment into the account during the lookback period,
then the financial institution must follow the procedures in 31
CFR 212.6.
What are the procedures for performing Uniform application of account review
during lookback period? [VI - 4.1]
Uniform application of account review
The financial institution must perform an account review
without consideration for any other attributes of the account or
the garnishment order, such as:
1. The presence of other funds, from whatever source, that
may be commingled in the account with funds from a
benefit payment;
2. The existence of a co-owner on the account;
3. The existence of benefit payments to multiple
beneficiaries, and/or under multiple programs, deposited
in the account;
4. The balance in the account, provided the balance is above
zero dollars on the date of account review;
5. Instructions to the contrary in the order; or
6. The nature of the debt or obligation underlying the order.
What is the Priority of account review [VI - 4.1]
Priority of account review
The financial institution must perform the account review
prior to taking any other actions related to the garnishment
order that may affect funds in the account.
What are the Rules and Procedures to Protect Benefits (31 CFR 212.6) [VI - 4.1]
Rules and Procedures to Protect Benefits (31 CFR
212.6)
If an account review shows that covered Federal benefits have
been directly deposited into an account during the lookback
period, the financial institution must comply with the rules and
procedures to protect Federal benefits set forth in 31 CFR
212.6.
What are the procedures for establishing a protected amount? [VI - 4.1]
Protected amount
The financial institution must calculate and establish the
protected amount for an account, ensuring that the account
holder has full access to the protected amount.9 The financial
institution may not freeze the protected amount in response to
the garnishment order. Further, the account holder may not be
required to assert any right of garnishment exemption prior to
accessing the protected amount in the account.
9 Where an account holder had debit card access to an account prior to the
receipt of a garnishment order, the requirement to provide “full and
customary” access to the protected amount means the account holder should
have debit card access to that amount. See 78 FR at 32104. Also, the
interagency regulation does not limit a Federal credit union’s right to exercise
its statutory lien authority against the protected amount in a member’s
account. A lien may be enforced against an account when the member fails to
satisfy an outstanding financial obligation due and payable to the Federal
credit union. 12 U.S.C. 1757(11) and 12 CFR 701.39.
What are the procedures for establishing separate protected amounts? [VI - 4.1]
Separate protected amounts
The financial institution must calculate and establish the
protected amount separately for each account in the name of
an account holder, consistent with the requirements in 31 CFR
212.5(f) to conduct distinct account reviews.
What are the procedures for handling funds in excess of the protected amount [VI - 4.1]
Funds in excess of the protected amount
For any funds in an account in excess of the protected amount,
the financial institution must follow its customary procedures
for handling garnishment orders, including the freezing of funds, provided they are consistent with paragraphs (f) and (g)
of 31 CFR 212.6.
What are the One-time account review process [VI - 4.1]
One-time account review process
The financial institution is only required to perform the
account review one time after it receives a garnishment order.
The financial institution should not repeat the account review
or take any other action related to the order if the same order is
subsequently served again upon the financial institution.
However, if the financial institution is subsequently served a
new or different garnishment order against the same account
holder, the financial institution must perform a separate and
new account review.10
10 A “new” garnishment order means the creditor has gone back to court and
obtained a new order, as opposed to re-filing an order previously served
(https://www.fms.treas.gov/greenbook/FAQs-May-12-trsy-ver1.pdf). A
garnishment order that is re-issued after the return date, under a different
execution number, would not constitute a “new” garnishment order.
What are the continuing or periodic garnishment responsibilities? [VI - 4.1]
No continuing or periodic garnishment responsibilities
The financial institution may not continually garnish amounts
deposited or credited to the account following the date of
account review. It also must take no action to freeze any funds
subsequently deposited or credited, unless the institution is
served with a new or different garnishment order.
What is the permissibility Impermissible garnishment fee [VI - 4.1]
Impermissible garnishment fee
The financial institution may not charge or collect a
garnishment fee against a protected amount. The financial
institution may charge or collect a garnishment fee up to five
business days after the account review if funds other than a
benefit payment are deposited to the account within this
period, provided that the fee may not exceed the amount of the
non-benefit deposited funds.
What are the Notice to the Account Holder (31 CFR 212.7) Requirements [VI - 4.1]
Notice to the Account Holder (31 CFR 212.7)
A financial institution must send an account holder named in
the garnishment order a notice if:
1. A covered Federal benefit payment was directly deposited
into an account during the lookback period;
2. The balance in the account on the date of account review
was above zero dollars and the financial institution
established a protected amount; and
3. There are funds in the account in excess of the protected
amount.
What are the Notice Content Requirements for the Notice to Account Holder? [VI - 4.1]
Notice content
The notice must contain the following information in readily
understandable language:
1. The financial institution’s receipt of an order against the
account holder;
2. The date on which the order was served;
3. A succinct explanation of garnishment;
4. The financial institution’s requirement under the interagency
regulation to ensure that account balances up to the
protected amount specified in 31 CFR 212.3 are protected
and made available to the account holder if a benefit agency
deposited a benefit payment into the account in the last two
months;
5. The account subject to the order and the protected amount
established by the financial institution;
6. The financial institution’s requirement pursuant to State law
to freeze other funds in the account to satisfy the order and
the amount frozen, if applicable;
7. The amount of any garnishment fee charged to the account,
consistent with 31 CFR 212.6;
8. A list of the Federal benefit payments subject to this
interagency regulation, as identified in 31 CFR 212.2(b);
9. The account holder’s right to assert against the creditor that
initiated the order a further garnishment exemption for
amounts above the protected amount, by completing
exemption claim forms, contacting the court of jurisdiction,
or contacting the creditor, as customarily applicable for a
given jurisdiction;
10. The account holder’s right to consult an attorney or legal aid
service in asserting against the creditor that initiated the
order a further garnishment exemption for amounts above
the protected amount; and
11. The name of the creditor, and, if contact information is
included in the order, means of contacting the creditor.
What content may be included in optional garnishment notices? [VI - 4.1]
Optional notice content
The financial institution also may provide the account holder
in readily understandable language any of the following
information:
1. The means of contacting a local free attorney or legal aid
service;
2. The means of contacting the financial institution; and
3. A disclaimer that the financial institution is not providing
legal advice by sending the required notice to the account
holder.
What are the procedures for Amending notice content of garnishment notices? [VI - 4.1]
Amending notice content
The financial institution may also amend the content of the
notice to integrate information about a State’s garnishment
rules and protections in order to avoid potential confusion or
harmonize the notice with State requirements, or to provide
more complete information about an account.
What are the requirements for Notice delivery [VI - 4.1]
Notice delivery
The financial institution must issue the notice directly to the
account holder, or to a fiduciary who administers the account
and receives communications on behalf of the account holder.
Only information and documents pertaining to the garnishment
order (including other notices or forms that may be required
under State or local law) may be included in the
communication.
What are the requirements for Timing of Notice delivery [VI - 4.1]
Notice timing
The financial institution must send the notice to the account
holder within three business days of the date of account
review.
