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#1983464 - 12/16/14 08:11 PM Exception hold reason
mdog76 Offline
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What is really meant by "Check is drawn on account with repeated overdrafts"? I know this may seem simple, but there is some difference of opinion on this.

Thank you.

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#1983487 - 12/16/14 08:50 PM Re: Exception hold reason mdog76
ahkcompliance Offline
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Joined: Sep 2008
Posts: 2,471
Midwest
d) Repeated overdrafts. If any account or combination of accounts of a depositary bank's customer has been repeatedly overdrawn, then for a period of six months after the last such overdraft, Secs. 229.10(c) and 229.12 do not apply to any of the accounts. A depositary bank may consider a customer's account to be repeatedly overdrawn if--
(1) On six or more banking days within the preceding six months, the account balance is negative, or the account balance would have become negative if checks or other charges to the account had been paid; or
(2) On two or more banking days within the preceding six months, the account balance is negative, or the account balance would have become negative, in the amount of $5,000 or more, if checks or other charges to the account had been paid.

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#1983506 - 12/16/14 09:06 PM Re: Exception hold reason mdog76
rlcarey Offline
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Galveston, TX
That is not what that is saying to me. It is saying that checks being deposited are drawn on an account that has had past overdrafts.

Repeated overdrafts would be: "You have overdrawn your account repeatedly in the last six months."
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#1984281 - 12/18/14 10:11 PM Re: Exception hold reason mdog76
John Burnett Offline
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Cape Cod
"Check drawn on account with repeat overdrafts" might be a valid reason for using a "reasonable doubt" exception hold.

An alternative decision: refuse the check for deposit and suggest that your customer cash it at the bank it's drawn on (if an individual) or have your customer request that the remitter replace the check with a bank check or money order.
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#1984491 - 12/19/14 09:06 PM Re: Exception hold reason mdog76
Elwood P. Dowd Offline
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Next to Harvey
The language comes from Model Form C-13. It is listed as a reason for imposing an exception hold:

--The check is drawn on an account with repeated overdrafts

Model Form C-13 has always been sort of a train wreck of compliance logic; e.g. some of the permissible holds it acknowledges would be a complete waste of time as the item could be legitimately returned well after the hold would expire. For this one, the logic fault is:

How would the depositary bank know that a check drawn on a different bank was drawn on an account with repeated overdrafts? And, if they did, wouldn't that suggest the drawee bank was paying the checks written against insufficient funds and might well pay this one too?

The language has been in place for 26 years so I guess it doesn't make much difference.
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#1984506 - 12/19/14 09:58 PM Re: Exception hold reason mdog76
John Burnett Offline
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Actually, an example would be a check drawn by a local business on another bank and your bank has several recent charge-backs from the account it's drawn on for NSF. Happens all the time when a business is circling the drain.
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#1984507 - 12/19/14 10:02 PM Re: Exception hold reason John Burnett
Elwood P. Dowd Offline
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Next to Harvey
Actually, if the drawee bank is sending the checks back it's entirely possible that the account is never overdrawn and C-13's alternative:

--We have confidential information that indicates that the check may not be paid.

would be the choice founded on information the depositary bank actually had at its fingertips.
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