I've recently taken over the monitoring of Reg CC holds in our bank. Although I feel like I probably still have a lot to learn, I also feel like I know quite a bit about Reg CC from my years in banking. But I do have a question regarding one of the first holds I have come across since taking over the job. We had a customer who deposited a check into their checking account and later came in to the bank to let us know that it was fraudulent. We were not notified by another bank only by the customer. The banking center manager then put a hold on the customers account for the amount of the check. She listed the hold as an extended hold and put it on for a period of 01/04/2016 to 03/01/2016 - and she did not fill out a hold notice. I believe the hold should fall under Reg CC exception hold with the action of "We received notice that the check is being returned unpaid" chosen. My co-worker believes since we weren't notified that the check was coming back - only that the check was fraudulent - by the customer, then we can just put a hold on the amount of the check and it doesn't fall under Reg CC. I know that when we receive notice that a check is coming back, we put holds on accounts, but not always as a Reg CC hold. Shouldn't this always fall under Reg CC if it's a checking account? And shouldn't we always be filling out a hold notice form (exception) along with following the time frame permitted for holds? Any help would be appreciated.

Thanks,
Lisa

Talk to your legal counsel. There are no regulatory provisions to hold any customer funds that fall outside of the guidelines found under Reg. CC. If the customer thinks the funds are coming back, they should not spend them. If the midnight return deadline has passed, the other bank will most likely be on the hook and not your bank or the customer.

Why is the check "fraudulent"??

Regulation CC holds: Prescribed by the regulation as to their length and amounts as well as the timing and content of the notice supplied to the customer.

"Reasonable cause to doubt collectability" under Regulation CC can come from any number of circumstances. Several are listed in Model Form C-14. Being notified that the check is being returned by the payee bank is only one of them. If the person who deposited the check tells you its no good that would sound pretty reasonable to me even if it is not listed on the model form. Your bank would have the right to return a check drawn against funds legally held according to the regulation.

Non Regulation CC holds: Whatever a bank wants to make up. You risk an allegation of wrongful dishonor if you bounce a check because of the hold. Your bank would have to prove based on the facts and circumstances that you had some legal right to refuse to pay the check that was presented. You might win. You might lose.

As it was done, you have no claim that it is in accordance with the regulation so you are sort of own your own. The simpler technique would have been to ask the customer to give you permission to debit the item back to the account now and forget all of this hold stuff.

I would like to commend to you the last sentence in section 229.13 for thought. You can make a Reg CC hold under that section for longer than the safe harbor periods in that paragraph, but you will need to justify the longer duration.

I also recommend the practice of immediately charging your depositor's account and crediting suspense when you've been notified by a paying bank that it's returning a check, rather than holding the funds.

What my branch manager is telling me is that the customer came in and stated that the check was one of those fraudulent "lottery" checks. Why it wasn't questioned at the time of deposit by the branch is another question in itself. BUT supposedly the customer came in, he is a good customer with plenty of money in his account, and stated the check was no good. So the branch put a hold on the account. As far as I know we have not received notification from anyone else stating it is coming back. So would you recommend asking the question at this point if we could debit the account and crediting our suspense while we wait for the check to be returned? Instead of having this 2 month hold sitting out there with no documentation whatsoever??

I agree with immediately charging the depositor's account at notification of a returned check. This is something I will be looking into.

Thanks for all of the help.
Lisa

So after reading thru my compliance manual and reading section 229.13 this is my take on the issue:

Because we believe the check will be returned after the information provided to us by the customer, we could put a hold on the amount of the check for 7 business days (normal exception hold) BUT could extend it by 5 days. If in these 12 days we then receive notice from the paying bank that the check is going to be returned we could decide to extend the hold. Or we could charge back the customers account - which would make more sense to me. But we would still need to follow the Reg CC guidelines and provide our customers with a notice for the original hold amount of 7 or 12 days.....

Am I understanding this correctly?

Nope.

The gibberish in the last paragraph of 229.13 says you can put on a hold that adds 5 BDs to the 2BDs that would ordinarily apply to such a check under 229.12. That means the funds would have to be available by the opening of business on the 7th business day. Then the last sentence says you can go longer than seven (beyond the safe harbor) if you can justify the longer hold.

Yes you have to provide a notice to the customer.

Find an image of that check from your files. If it's drawn on a U.S. Bank (check the bank name against the encoded routing number), that bank has to comply with the UCC and Reg CC midnight deadline even if the check is fraudulent.

Ok......I was afraid I was reading it wrong.

I will definitely get a copy of the check. Obviously we need to look at our procedures a little more.

Thanks so much for your help!

Lisa

Ok....I'm back again! Sorry if I sound dumb - just want to make sure I am telling the employees correctly.

We deposit a check into a checking account on January 4th. On the 5th we receive a telephone call from the paying bank informing us that the check is not good and will be returned. We put an exception hold on the account for 7 business days from the date of the deposit and mail the customer a notification. Correct so far - right?? My question now is - what are our options after the 7th business day if we have not received the check back yet?? Do we have any other options??

Thanks again for any help!!

Lisa

It is: A longer extension may be reasonable, but the bank has the burden of so establishing. If the paying bank had told me the check was coming back and I had not received prior to the expiration of the hold, I would call the paying bank to verify that the item had actually been returned, the date that it happened, and the method used. That documented phone call would put me in a secure position for continuing the hold...

You should centralize the decision making on an issue like this; there is little or no chance that the average employee would do this often enough to get it right.

I agree with the centralizing.......and for the most part we do this. There are always a few that seem to slip through the cracks.

Your response is a big help for this newbie! Thank you so much!

Lisa