EFA Flashcards
How many subparts are there for EFA and what does each go over?
4 subpart A-D
Subpart A: Definitions
Subpart B: Funds Availability requirements
Subpart C: Check Collection and Return Requirements
Subpart D: Check 21 requirements
What is the definition of an account under Subparts B-D?
B & C: A deposit that is a transaction account. Encompasses consumer and corporate accounts and includes accounts where withdraws or transfers can be made through any of the following:
- -negotiable instrument
- -Payment order of withdrawal
- -telephone
- -Electronic payment
However, subpart B an account does not include accounts where the account holder is a Bank or office of a bank outside of the US.
Subpart D: Any deposit at a bank including demand deposit or other transaction account and a savings deposit or other time deposit.
What is the definition of a bank?
Insured banks, credit unions, agencies and branches of foreign banks, FHLB members.
For subparts C and D a bank also includes anyone in the business of banking, federal reserve banks, FHLBs and state/local govts to the extent they pay checks.
Subpart D also refers to the US treasury and USPS as banks to the extent they act as payors.
What does the term “Paying bank” refer to?
Any bank at which or through which a check is payable and to which it is sent for payment or collection. For subpart D this can also include the US treasury and USPS.
What is a reconverting bank?
The bank that creates a substitute check or is the first bank to transfer or present a substitute check to another party.
What is a Check, including original checks and substitute checks (4)?
The term check includes both original checks and substitute checks.
• 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 (routing account, check numbers) containing all of the information encoded on the original check’s MICR line, except as provided in the industry standard for substitute checks,
– 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 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
What is a copy of an 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.
What does truncate mean in reference to checks?
Truncate means 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.
What is a local 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.
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 is an Electronic Check or Electronic Returned check? (2)
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.
What is an electronically created item?
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 is a Consumer, Consumer Account, and a Customer?
- 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 is a Business day vs. a banking Day?
- 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 an 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.
To qualify for next day availability the deposit must meet what two requirements?
Exceptions? (2)
-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:
-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.
What types of deposits qualify for next day availability?
- 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).
What is next day availability?
When a qualifying deposits must be made available for withdrawal the business day after the banking day on which they were received.
What conditions must be met for a state or local govt check to receive next day availability?
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.
True or false:
A bank can require the use of special deposit slips or envelopes.
True for deposits of state and local govt checks, cashiers, certified, and teller’s checks. The bank must either supply the slips or inform customers how a slip can be obtained.
What conditions must be met for an on-us check to qualify for next day availability?
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.
What is the $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 $225 or the aggregate amount deposited to all accounts including individual and joint accounts, held by the same customer on any one banking day.
This rule does not apply to deposits received at nonproprietary ATMs.
The $225 amount changes every 5 years to account for inflation and is rounded to the nearest $25. It was adjusted in 2020 and will adjust again in 2025.
Under the permanent availability schedule, local check deposits must be made available when?
No later than the second business day following the day on which funds were deposited.
When must funds be made available if deposited at nonproprietary ATMs (cash and all checks)?
No later than the fifth business day following the banking day on which they were deposited.
When would a check meet the criteria for local check availability rather than next day availability which most checks normally receive?
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). (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 on us checks are subject to additional rules.)
When do US Treasury Checks, USPS money orders, Cashier’s, certified, teller’s, and state and local government checks and checks drawn on a Federal Reserve Bank or FHLB that DO NOT qualify for next day or second day availability receive availability?
They receive funds availability according to local check availability.
What are the special rules regarding cash withdrawals, if the bank chooses to extend the availability schedule for cash or similar withdrawals by one day?
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 $450 of the deposited funds (or the maximum amount that may be withdrawn from an ATM, but not more than $450) 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 $225 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 are the 6 exceptions to the availability schedule?
The regulation provides for exceptions in six situations:
• New accounts
• Deposits in excess of $5,525 on any one day
• Checks that have been returned unpaid and are being redeposited
• Deposits to accounts that have been repeatedly overdrawn
• Cases in which the bank has reasonable cause to believe the check being deposited is uncollectible
• 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 are the requirements under the new account exception to the availability schedule? (6)
- Accounts are new for the first 30 calendar days it is open.
- new accounts are exempt from the availability schedule for deposits of local checks, but next day availability is required for deposits of cash and for electronic payments.
- The first $5,525 of a day’s aggregate deposits of checks must be given next day availability. The amount in excess must be made available no later than the 9th business day following the day of deposit.
- To qualify for next day availability on a new account, deposits must be made in person with an employee. If they are made at an ATM or ITM instead availability may be provided on the second business day after the day of deposit.
- Treasury checks are an exception for new accounts, and always must be given next day availability, regardless of how they were received.
- Banks are not required to make the first $225 of a days deposits of local checks, or the funds from on-us checks available next business day.
What are the requirements under the large deposit exception to the availability schedule?
A depositary bank may extend hold schedules when deposits other than cash or electronic payments exceed $5,525 on any one day. A hold may be applied to the amount in excess of $5,525.
To apply the rule, the depository 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.
What are the requirements under the Redeposited Checks exception to the availability schedule?
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.
What are the requirements under the repeated overdrafts exception to the availability schedule? (2)
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.
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.
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 $5,525 or more. The exception may also apply if
the account would have been overdrawn by $5,525 or more had the check or other charges been paid.
What are the requirements under the Reasonable cause to doubt collectability exception to the availability schedule?
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
Or in cases where:
• 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
If the bank uses this exception they must notify the customer in writing (mail/person) at the time of deposit or mailed 1 B day after the deposit is made. Notice must indicate that availability is being delayed and reason the bank believes the funds are uncollectable.
Can a bank assess an overdraft fee or returned check fee if the bank invokes the reasonable cause exception to the availability schedule?
It depends.
If a depositary bank invokes the reasonable-cause exception and does not inform the customer in writing at the time of the deposit, it may not charge the customer any overdraft or returned-check fees resulting from the hold if:
- The deposited check is paid by the paying bank and
- The overdraft would not have occurred or the check would not have been returned had the depositary bank not imposed the reasonable-cause hold.
However, the depositary bank may assess overdraft or returned-check fees if the exception hold notice states that the customer may be entitled to a refund of any overdraft or returned-check fees imposed and describes how the customer can obtain the refund. The bank must then refund the fees upon request.
What are the requirements under the emergency conditions exception to the availability schedule? (4)
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
Whenever a bank invokes one of the exceptions to the availability schedules (other than the new-account exception), what is it required to do?
They must notify the customer in writing.
They can provide the general exception notice, the one-time exception notice for non-consumer accounts, or the exception notice for repeated overdrafts.
What elements are required in the general exception notice that is provided to customers when a bank evokes an exception to the availability schedule? (5)
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)
True or false:
If the deposit is made at a staffed facility, the exception notice may be given to the person making the deposit, regardless of whether that person is the customer who holds the account.
True
