Wow - never saw so many people worked up over Reg CC in a while.

But I like debates - so I have to chime in.

In my experiences, the reasonable cause exception is not the #1 exception hold reason. At the institutions that I have worked and audited I would say it's at least #2, maybe #3, behind the large item exception and the repeated overdraft exception.

I have always said, that to protect the assets of the bank use any methods within the law necessary. I don't think the lack of someone answering the phone or refusing to verify checks over the phone is an "existence of facts". I don't think it meets the spirit of the law.

But, on the other hand, as David points out - what are the real risks. Possible regulatory criticism - maybe - getting sued - doubtful.

If you really think that you have enough time to call on all these checks and that a case-by-case hold isn't enough and you need to use the exception period - hey - knock yourselves out.

Only to give my 2¢.

I suspect when the bank is faced with possible loss or the possibility of preventing loss… most will take the preventing loss action, even if it increases the risk of an angry customer. If the check funds cannot be verified = reasonable cause = place extended hold.

But there is one statement that was previously stated, “Reg CC is written in the bank’s favor.” Surely, that is some punch line to a joke.

This has been an interesting discussion, and FYI, I have always been in the "Ken" camp on this one. So, I have a question that relates to my interpretation.

Customer A owns a small business and often accepts checks from the same vendor/client and those checks have never been returned. However, one day a call is placed to the bank to verify funds (who knows - a new teller possibly )but they refuse to give any information. Wouldn't a "reasonable person" have greater cause to believe the check would be paid than not. On the flip, if even one or two previous checks drawn on this vendor had been returned, I could reasonably believe that the possibility of this item being returned is greater. So, isn't it cirumstances such as this that are to be considered before you are allowed to place an exception hold using the "reasonable doubt" clause absent verification? If not, wouldn't all banks be able to place an exception hold on an item and simply say they had called but couldn't get it verified??

I just don't see how "silence" can cause a person to form a reasonable belief it may not be paid. As someone stated earlier, you are in no different position than you were if you had not called. And surely - there is an agreement that you cannot just simply invoke this clause because of a "gut" feeling without a call. There needs to be "an existence of facts"

According to this - "The reason for the bank's belief that the check is uncollectible shall be included in the notice required under paragraph (g) of this section" - your notice would have to read: We are placing a hold because the other bank refused to verify funds, therefore we we have reason to believe it may not be paid. IMHO, that level or belief exists on ALL checks deposited where verification is not or cannot be performed.

FWIW - Fraud Pup - it would seem to me that your policy of placing a hold on cashier checks that you are unable to verify due only to the fact you have experienced an increase in couterfeits/losses may also go against this part of Reg CC unless there are simliar charecteristics on the checks you are placing a hold on:
"Such belief shall not be based on the fact that the check is of a particular class or is deposited by a particular class of persons. " This seems analgous to the argument regarding credit card checks.

Don't forget - if you are truly concerned that the check will not be paid because you cannot get it verified - you can always refuse to accept it at all or send it for collection. Why roll the dice to reduce losses by possibly violating the law when you have a perfectly legal position to take?? Just make sure your CO understand the penalties of non-compliance could be larger than the loss you are trying to prevent. Been there - almost did that! The BOD was not pleased when the examiners starting using acronyms

The problem with your scenario is that it is very one sided. I can change your story slightly and get a different result. (I typed a few words in ALL CAPS and deleted a few). Let's imagine:

Customer A owns a small business and often accepts checks from the same vendor/client and those checks ARE OFTEN returned. However, one day a call is placed to the bank to verify funds (who knows - a new teller possibly )but they refuse to give any information. Wouldn't a "reasonable person" have greater cause to believe the check would NOT be paid.

Nobody puts "We are placing a hold because the other bank refused to verify funds, therefore we we have reason to believe it may not be paid" on the hold notice. Commonly, it states "Unable to verify funds".

But you're missing the whole point. The point is, does not being able to verify funds give you a reason to doubt the collectibility of the check? Let's not twist this anymore.

Get serious about violations of Reg CC. I've never seen a CMP, MOU or any other acronyms related to violations of Reg CC. I've noticed that no one has challenged my risk-based comments (9 posts above).

There isn't much left to quote or a perspective to add on how to read or interpret the regulation. However, I alluded to one fact that I guess I should have emphasized.

Quote:

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...particularly if it causes them to bounce a check.

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A Regulation CC violation for an illegal hold will generate a slap on the wrist from a regulator. If its systemic, they may lean on you pretty good for substantial retraining. As Bonnie pointed out in another thread, if its part of an overall pattern of ignoring compliance issues they may land on you with both feet.

The only appreciable risk of a single illegal hold is when it causes you to bounce a check you should have paid. That's "wrongful dishonor" and financial damages are only limited by the amount of damage you cause; there are no statutory limits. Violation of a federal law in imposing a hold is conclusive evidence that the check should have been paid according to state law.

The bank will be sued for wrongful dishonor under state, not federal, law. I've been involved with two cases where the banks bounced checks because of illegal holds. After their attorneys figured out Regulation CC, both advised the bank to settle.

My perspective is that the importance of compliance generally follows the money. I encourage clients who are returning a check due to a Reg CC hold to always review the legality of the hold before actually returning the check.

P.S. No, David, I wasn't attacking you. It is relevant to point out how widely held an opinion is. You are free to note that some of the opinions I have expressed here are minority opinions as well. Do you remember that one I have that says banks cannot really exercise a 7 day prohibition on withdrawals unless prompted by the Fed - regardless of what the contract says? (If someone wants to argue with me we'll exhume that one too, but please start another thread, don't hijack this one.)

To understand my point of view on this issue, I must remind you (pl) that I am no longer a teller/retail banker. If I am face-to-face with a customer, it is generally a bad thing. When I place a hold on a cashier's check, it is on the following business day. The teller already took the check and I'm going over the tellers' work, checking on reported suspect deposits. If I am going to place a Reg CC hold on a "cashier's check", it will be because I cannot verify that it is, in fact, a "cashier's check". Yes, I've done more recently due to the annual Springtime increase in counterfeits. More people are selling their vehicles right now and more and more are getting paid with "cashier's checks". Just because it says "cashier's check" on the face of the piece of paper, doesn't mean that it is truly a cashier's check. I could run to Office Depot right now and buy myself a program to make my own "cashier's checks". Until I've verified the document to be a legitimate "cashier's check", it is just a check. The majority of these checks are deposited into fairly new accounts, appear very similar in the way they are printed, and generally fit a profile that I would recognize, hopefully, as possibly being a bogus check.

It should be noted that if a customer has a check returned solely because the "cashier's check" was held, he most likely wrote and negotiated the check before he had the funds to cover it. Is that legal? I thought that when it came right down to it, that was called "float". Sorry, I have little compassion for people that operate in that manner. On the other hand, I will do EVERYTHING in my power to assist the customer in every way if the circumstance is that the teller took the check and I was responsible for placing a hold on the following day. In these cases, I attempt to contact the customer by calling both phone numbers on file for him/her and mail a notice of the funds hold. If they tell me when I talk to them that they had written a check AFTER the deposit, I will do what I can to help them. If it is a small check, I may pay the item based on that small risk. If it, too, is a large dollar amount, it will be returned as "uncollected funds".

Another thing to consider would be the customer we had a couple weeks ago who deposited a "cashier's check" with no hold, withdrew the funds and sent them Western Union to a guy in Canada who was buying his $2000 car in Oklahoma with a $6000 counterfeit "cashier's check". The argument I've gotten from each and every customer in this scenario is that we should've known whether the check was good BEFORE allowing him to withdraw the funds. Now, he's down almost $4k and has no way to get the money right now. In his mind, we let him down. So, from a customer service standpoint, I feel we have an obligation to try to protect the customer. The funds hold is all that we have to do that.

I do have this first hand from FDIC in the San Francisco region. FDIC does not consider the fact that the payor bank does not verify checks to be sufficient reason to place a "Reasonable Cause" exception hold.

I have been at a bank where Reg CC was at the top of the list of examiner concerns, so I have seen it happen.

Pup,
Your point about protecting customers and the bank from losses is well taken, and I agree that it is part of our jobs. Also, it seems that you're placing holds only in situations where something beyond the inability to verify funds has caused the item to show up on your radar, and the lack of verification simply puts the hold decision over the top. In such cases, wouldn't it make more sense to use a less flimsy hold reason, such as 'suspected counterfeit' (following your cashier's check example?) The fact situation seems to better support this reason, as you are considering the hold in the first place because of irregularities on the check, transaction patterns indicitave of a scam, etc.

Jac,
"Suspected Counterfeit" definitely causes a "Reason to Doubt Collectibility" of the check. If I boiled down every reason that I could use this exception, I'd have a 2-page list of possible reasons to use. I don't see the point. Your reason for the hold (suspected counterfeit) is merely a drilled down explanation of the case in which my reason (Reason to Doubt Collectibility) is a valid one. Besides, on our Funds Hold Schedule, there are 5 exceptions that can be used: 1)Large Item Exception, 2)Redeposited Checks, 3)Repeat Overdraft Customer, 4)Emergency Conditions, 5)Reason to Doubt Collectibility. One of the reasons we can use under our policy is that we are unable to verify funds. That is EXACTLY what applies in this case. After all, even if I "suspect" that it is counterfeit, I'm going to call and if I am told that it is good, suspicion or not, I'm not holding it.

Jac and Great Blue, those are some excellent points that I will definitely take to my CO for consideration. I appreciate your straight-forward, level-headed responses to what has become a fairly heated debate, especially since it seems that you're on the other side of the debate. Thanks again.

David, FWIW, I have to agree with Ken on this one. The risk primary risk here is legal risk due to wrongful dishonor. In court, "Reasonable belief" is going to require some affirmative evidence that the item may be returned. Reliance on the refusal of the paying bank to verify funds or not being able to contact the bank to verify funds because the institution is closed is going to hurt you in court.

Factor in the possibility that the bank will gain financially (float, overdraft fees, etc.), and we're getting awfully close to gross negligence or outright fraud. Now, in addition to compensatory damages, punitive damages are on the table. Not to mention willful failure to comply, which lands you on tier 2 of the CMP scale.

Have we seen this before? Admitedly no. But we're only 3 years into life under GLBA, where many institutions are refusing to verify availability of funds due to privacy concerns. Sooner rather than later, someone is going to lose major dollars in court over this issue.

If you don't feel comfortable with a check, send it for collection, as what is reasonable and what is not is, as stated within this thread, open for interpretation. Simply avoid Reg CC - send questionable items for collection - the customer will receive credit in a few days, good funds or find out that there is a problem.

A+ for a thread where people disagreed stongly, but remained civil.

The bottom line here is that a few banks (Wells Fargo and others) are making it hard for all of the other banks just because they won't verify funds. They claim that it is a Privacy issue - it isn't. We all know that. Consequently, banks are not able to verify funds on checks.

We're all debating whether we have the right under Reg CC to hold these funds when we should be trying to make these "mute" banks cooperate. I recommend that we stop verifying their checks. If we all shut down verification for banks that won't verify our checks, we might be able to clear up this mess.

I have one client that is about $7 billion. They told Wells Fargo that they wouldn't verify their checks anymore (in response to Wells Fargo announcement). Wells gave them a special phone number to call where all checks will be verified. Privacy is just an excuse to get the smaller banks to stop "bothering" them.

David,
That's an excellent point. I agree that we are trying to solve the wrong problem. Thank you for sharing your success story on the verification calls at Wells. But please tell me that the 'special number' isn't a 900 number that charges $2 per call (at least one large east coast bank has gone that route. )

I don't want to reveal the bank - but it was a local number for them.

We don't have any banks in our area that will verify funds anymore making it a difficult issue. At this time we are following suit and our reasoning is privacy issues as well. We will no longer verify anything unless we have spoken to or gotten something in writing from a customer giving us permission to do so. We will however, verify if a check has already cleared to the bank of first deposit with check number, account number, name on the check, ect.

Quote:

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I have one client that is about $7 billion. They told Wells Fargo that they wouldn't verify their checks anymore (in response to Wells Fargo announcement). Wells gave them a special phone number to call where all checks will be verified.

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Like it; find it incredible that one bank would request another to do what it would refuse to do.

The story I got from Wells was that if your bank is a member of BITS (I can't remember what the acronym is for but it has to do with security), then you get a special number and access to code to verify checks.

Many of the very large banks are members of BITS, so they continue to verify for one another while the smaller banks are left out.

The security person from Wells told me it wasn't privacy that was the issue (although that was the reason given by front line staff), but a fraud deterrent against counterfeit checks. They felt the crimnals were calling several times to "verify" checks as a method to narrow down the approximate balance in the account so they could write a counterfeit check with the knowledge that the funds would probably be there. It's a weak argument if you ask me especially since they made no provisions for innocent merchants and financial institutions.

Okay, perhaps not a weak argument, but more akin to swatting a fly with a sledge hammer.

IMHO this is the type of industry trend that ABA should get involved with to work out a better solution.

With pronouns this time: I like it; I find it incredible that one bank (Wells Fargo) would request another to do what it would refuse to do.