Sorry, I'm a bit fuzzy today and it is not a Monday. I just need some clarification because I'm getting some pushback of the "we've never done it that way variety".

1. When a bank receives a large dollar notification most times the actual item does not arrive at the bank for several days (sometimes up to 5-days). Is the bank required to send a Reg. CC hold notice to the customer that deposited the item when it receives the notification the item is being returned? I'm saying of course, since the customer needs to know that info ASAP and also, amongst other things, they must stop writing checks on funds they thought were good! Another reason for the notice is to disclose to the customer the refund of overdraft fees, returned check fees, etc. since the hold notice was not given at the time of deposit.
The bank is telling me that instead they place a 7-day hold on the large item that is being returned the day they receive the notice and then have one of the bankers call the customer to let them know their account will be debited and the check will be returned to them when the bank gets the actual item back. I'm saying this is absolutely not acceptable and is a violation of Reg. CC. Do you agree?

2. As far as the hold notice itself in this situation, do you place an exception hold and check the box indicating "We believe the check you deposited for X on 1-26-2009 will not be paid for the following reasons":
"We received notice that the check is being returned unpaid"?

3. As far as the section of the hold notice regarding the availability dates of the funds do you simply put "NA" in that area of the form since the item will be charged back when received or do you try to explain "the check will be charged back to your account when received by the paying bank"? (That section of the hold notice form does not lend itself very well to trying to explain what is happening to the item and that there is NO availability date listed because no funds will be available.)

Thanks for any responses.

You are attempting to address two notification requirements. The first is the notice of the impending return, which is required by subsection 229.33(d). That notice need not be in writing (it is to be delivered or given), but it is required to be timely, and should include "the facts" concerning the item being returned. Note that this notice is required whether you are taking no action, placing a hold, or charging the account pending the actual return of the item. By the way, this notice requirement is included not only in section 229.33(d) of Regulation CC, but also in the UCC, at 3-503. Some banks obtain waivers of those notice requirements, particularly if they automatically re-present returned items.

The second requirement is the notice of hold, if you place one. This notice must be written (electronic if the customer has agreed to same in compliance with ESIGN), and it has specific content requirements. The hold is a "reasonable doubt of collectibility exception" hold, and it has to have an expiration date. Generally, that date is either 7 or 11 business days following the day that the check was deposited. When that hold expires and the item has not yet been received (which can happen), you either have to make the funds available, charge the account for the yet-to-be-received return item, or extend the hold (which you can do, IMO, using the last sentence of section 229.13 as your authority: "A longer extension may be reasonable, but the bank has the burden of so establishing."

IMO, placing a hold and providing a hold notice in these situations is risky. It may be a much better policy to simply charge the account when you get a large return notice, suspending the funds pending receipt of the item. It's cleaner, less confusing, and avoids the technical requirements of the section 229.13 hold.

John, thank you for taking the time to respond, but I need a little more clarification on the last few sentences you wrote. I too, would like to get out of sending the 229.13 hold notice to the customer!
When you write:
"IMO, placing a hold and providing a hold notice in these situations is risky. It may be a much better policy to simply charge the account when you get a large return notice, suspending the funds pending receipt of the item. It's cleaner, less confusing, and avoids the technical requirements of the section 229.13 hold."
I'm not sure what you mean by "suspending the funds pending receipt of the item". How would this work operationally? What communication would we be required to send the customer regarding the suspending? and do we debit the account and credit a general ledger suspense account and wait for the item?.....because I thought if we "hold" the funds we have got to send that Reg. CC notice......

If you debit the customer's account based on the notice, you have to credit a suspense account, because your account with the Fed or other correspondent won't be charged until the item is delivered to you. When the item arrives, debit the funds from suspense and credit the correspondent account. That avoids the hold and hold notice (but not the section 229.33/UCC 3-503 notice).

Thanks again John, that makes sense.

I like this idea, but it seems like at some point your bank will outgrow the ability to track which items has been moved to suspense and which remain in a customer's account. With seperation of duties and compartmentalization, the communication lines would have to be fantastic between departments. Let's face it, any business has communications problems.

So, do you think there is a bank size for which this may start to become impractical? I have never worked for a Mega-bank so i don't know how they do this (1.5 and 1.1 Billion banks are my msot recent experience). But in both the 1.1B and 1.5B banks, we have used the paper notice effectively.

Milby,

My previous bank ($450 million) we did the hold notice-deal. My current bank is 1/2 the size so ripping the funds out and the GL credit should work fine. I agree with you a bank in that $1 billion $ range the GL trick is probably not worth the effort and you should stick with the hold notice.

Signed,

Someone from a place that sent that hockey team down river to you.....