Yesterday customer brings check to bank for $2,500 from his employer, requests to cash $2,000 and deposit $500.

Today, customer returns with another check from employer for $1500 and wants to cash it. Bank seems a bit suspicious at this point and calling paying bank. Neither check will clear at this time. Bank did not cash and wants to place hold on funds for first check presented yesterday.

Balance in customer's account at this time is just over $600, since we have knowledge the check will not clear can we place a hold on the entire balance? or only the portion deposited $500?

The non-Reg CC related question: "Does the 'employer' happen to be a secret shopping company." Smells like some time of advance fee fraud to me.

The letter of Reg CC states that in order to place a hold on funds in an account when you have cashed all or part of a negotiable instrument you must have the model clause in your funds availability disclosure.

C-6--Holds on Other Funds (Check Cashing)

If we cash a check for you that is drawn on another bank, we may withhold the availability of a corresponding amount of funds that are already in your account. Those funds will be available at the time funds from the check we cashed would have been available if you had deposited it.

From a risk based perspective, if you determine the customer is a scam victim rather than just an employee of a deadbeat business rather than bothering with Reg CC at all, I'd seriously think about debiting the account for the check prior to the return and placing the funds in an internal suspense account that you can offset when the item is returned. Since we are already out at least $1,400 I see no reason to give the customer the opportunity to make it $1,500.

Thanks Brian.

And if we don't have the C-6 model language in our Reg. CC disclosure currently, what are our options at this point?

This check is drawn on a small local business, it does not appear to be connected to any type of secret shopper scam.

It's probably not worth the $100 to risk being cited for placing a hold incorrectly. Place your reasonable cause hold on the $500 and update your funds availability policy. Since this change results in a more restrictive hold policy, you must provide 30 days prior notice to existing customers prior to implementing holds on cashed checks. (In the meantime you can always require that checks be deposited in full and the customer draw on the funds via a check payable to cash to allow you to hold the deposit as needed.)