Regulation CC, a federal regulation promulgated by the Federal Reserve Board, aims to ensure the prompt availability of funds deposited into transaction accounts, thereby protecting consumers and facilitating financial transactions. This article provides an overview of the types of accounts covered by Regulation CC and the key provisions governing funds availability.
Transaction Accounts:
Regulation CC applies to transaction accounts, which are defined as accounts that allow for frequent deposits and withdrawals. These accounts include demand deposits, NOW accounts, and share draft accounts, among others. Both consumer and corporate accounts are covered under the regulation.
Covered Deposit Types:
Regulation CC encompasses a wide range of deposit types, including:
- Cash deposits made in person or through ATMs.
- Negotiable instruments, such as checks, drafts, and money orders.
- Payment orders of withdrawal, including electronic funds transfers and wire transfers.
- Telephone transfers initiated by the depositor.
- Electronic payments, such as direct deposits and ACH credits.
Availability of Funds:
Regulation CC establishes specific rules regarding the availability of funds deposited into transaction accounts. Financial institutions have the flexibility to provide earlier availability if they choose, but they cannot delay availability beyond the maximum timeframes set by the regulation.
Next-Day Availability:
Certain types of deposits must be made available to customers on the first business day following the deposit, commonly known as next-day availability. These deposits include:
- Cash deposited in person to an employee of the financial institution.
- Electronic payments received by the institution.
- U.S. Treasury checks.
- U.S. Postal Service money orders.
- Cashier’s, certified, or teller’s checks.
- On-us checks (checks drawn on the same financial institution).
Funds Availability Schedule:
For checks not covered by next-day availability, Regulation CC specifies a funds availability schedule. Local checks, which are checks drawn on banks located in the same state as the depositary bank, must be made available by the second business day after the deposit. Nonlocal checks, which are checks drawn on banks located in different states, must be made available within a reasonable time, typically five business days.
Exception Holds:
Financial institutions may delay the availability of funds for certain deposits for a “reasonable period” under specific circumstances. These exception holds are permitted for:
- Large deposits exceeding a specified amount.
- Redeposited checks that were previously returned unpaid.
- Accounts with a history of overdrawing.
- Deposits made during emergency conditions beyond the institution’s control.
- Deposits into accounts of new customers (open for less than 30 days).
Disclosure Requirements:
Regulation CC imposes disclosure obligations on financial institutions to ensure that customers are informed about the availability of funds in their accounts. Institutions must provide customers with clear and conspicuous disclosures before opening a new account or modifying existing account terms. These disclosures must include information about the availability of funds for various types of deposits, as well as any applicable exception holds.
Conclusion
Regulation CC plays a crucial role in ensuring the timely availability of funds deposited into transaction accounts, protecting consumers, and facilitating efficient financial transactions. Understanding the regulation’s provisions is essential for both financial institutions and account holders to ensure compliance and protect their interests.
Sources:
- Federal Financial Institutions Examination Council (FFIEC) – Regulation CC Examination Procedures
- Federal Reserve – Regulation CC
- National Credit Union Administration (NCUA) – Expedited Funds Availability Act (Regulation CC)
FAQs
What types of accounts does Regulation CC apply to?
Regulation CC applies to transaction accounts, which include demand deposits, NOW accounts, share draft accounts, and other accounts that allow for frequent deposits and withdrawals. Both consumer and corporate accounts are covered under the regulation.
What types of deposits are covered under Regulation CC?
Regulation CC covers a wide range of deposit types, including cash deposits, negotiable instruments (checks, drafts, money orders), payment orders of withdrawal, telephone transfers, and electronic payments (direct deposits, ACH credits).
What is the general rule for funds availability under Regulation CC?
Funds deposited into transaction accounts must be made available to customers within specific timeframes, as determined by the type of deposit and any applicable exception holds.
What deposits are eligible for next-day availability?
Next-day availability applies to certain types of deposits, including cash deposits made in person, electronic payments, U.S. Treasury checks, U.S. Postal Service money orders, cashier’s checks, certified checks, and on-us checks.
What is the funds availability schedule for checks not covered by next-day availability?
For checks not eligible for next-day availability, local checks (drawn on banks in the same state) must be made available by the second business day after the deposit, while nonlocal checks (drawn on banks in different states) must be made available within a reasonable time, typically five business days.
Under what circumstances can financial institutions delay the availability of funds?
Financial institutions may delay the availability of funds for certain deposits under specific exception holds. These exceptions include large deposits, redeposited checks, accounts with a history of overdrawing, emergency conditions, and deposits into accounts of new customers.
What disclosure requirements does Regulation CC impose on financial institutions?
Regulation CC requires financial institutions to provide customers with clear and conspicuous disclosures about the availability of funds in their accounts. These disclosures must be provided before opening a new account or modifying existing account terms and must include information about the availability of funds for various types of deposits, as well as any applicable exception holds.
What are the consequences of violating Regulation CC?
Violating Regulation CC may result in enforcement actions by federal regulators, including fines, penalties, and restitution to affected customers. Financial institutions may also face reputational damage and loss of customer trust.