We are looking at implementing standard Reg. CC holds. (We currently do this on a "case-by-case" basis.) The decision has been made to apply standard Reg. CC holds to only new customers, and only for the first 12 months. In addition, we are not going to implement "new account" holds; just standard local/non-local holds. (All existing customers and new customers who pass the 12 month mark will have case-by-case holds.)
My question is this: if we have a customer who is continously overdrawn or who does not handle their account properly, we would like to reserve the right to extend the standard hold period for another 12 months. Can we do this? Can we do it if we disclose that we will? If so, what might be some suggested wording for the disclosure? I was thinking something like: "We reserve the right to extend the standard Regulation CC hold period in additional twelve month increments if we determine that your account has been handled improperly. If we invoke this option, we will notify you in writing at the address on file for you."
Any suggestions?
Thanks!
Leslie

I don't think I fully understand what you are doing, however...... You are not using the "new accounts" hold as allowed by the regulation for a true new account during the first 30 days. Are you putting a "case by case" hold as allowed by the regulation (no reason required) on each and every deposit and giving the first $100 available next day for any new account during the first 12 months the account is opened? Are you giving the customer a notice on every hold?

As far as the overdraft customers, etc. these may qualify for the reasonable cause exception holds (you have a valid reason) and you could place longer holds on these deposits.

If I understand correctly, you want to apply "standard" 2 & 5 day holds, otherwise known as CBC holds on ALL qualifying deposits for any customer during the first 12 months from account opening rather than apply the New Account Exception during the first 30 days. Then you say that after the 12 months you will apply CBC holds. This is where you lost me..... I think you mean that after 12 months of placing holds on the customer's deposits that you will instead place holds on a case-by-case (selective) basis.

Personally, 12 months seems like an awful long time to place a hold on my weekly payroll check. If I were your customer, I would find another bank that didn't have such a strict hold policy.

I'm curious to know why your bank wants to do something like this. If you are a community bank, I expect that there will be consequences. When your competition finds out that you will begin placing holds on everything that comes over the counter they will use that to thier advantage.

I also think the decision to not apply exception holds is not well thought out. The exception holds were designed to protect the bank by allowing the bank the option to hold funds LONGER when special circumstances are involved. You may regret doing away with this option, so be careful when you craft your disclosures. Just because you say you might invoke an exception hold doesn't mean you HAVE TO.

Also consider the work involved with placing holds on everything that comes over the counter for 12 months. Consider the time it takes to prepare the notice, input the hold on the computer and then call it back for accuracy. In addition, every hold you place is a potential Reg CC violation if it is not done correctly, so training will be very important if you take this approach.

Just some things to think about......

Dolly Nugent
Vice President
Compliance & CRA Officer
Citizens Business Bank

Actually, our computer system can be programmed to place the holds, so it will not be a manual process for us. We will just need to set the parameters in the system, and the computer will do the rest. We will use Special Deposit Tickets for the next day items, and by not placing extended holds (or only doing so on a case-by-case basis) we are actually giving our clients a better deal than the law allows. Most other banks around here place Reg. CC holds for the entire time a person is a cusomer of the bank, so our policy is better than other banks, and 12 months does not seem like an unreasonable time.
After the 12 month period expires, we will use the CBC holds as we are doing now. What I still do not know, however, is if we can extend the standard hold periods for those "problem" customers. I don't mean CBC holds, I mean programming our system to keep that particular customer in the same initial 12-month status for another 12 months. That would only allow us to continue placing the standard 2/5 day holds on that person's account.
This is very difficult to explain, so any help would be appreciated.
Thanks!
Leslie

I don't see any reason why you could not extend the standard availability policy for an additional 12 months, as long as the customer is notified of the extension 30 days in advance.

Leslie, Reg CC has a model notice C-15 (See also 229.13(g)(3)). This is maybe what you are looking for.

------------------
Comments are mine and not those of my employer.

[This message has been edited by William Taylor (edited 08-30-2001).]

I understand your concept but aren't you putting aditional "risk" on your bank. I mean your disclosure must state you hold policy which at this time measures new accounts and definition that your bank would state as 12 months. I would definitely check with your regulators as this is a bit out of the norm.

In your next step someone would need to monitor those case by case holds on your regular account base.

I would want an uniform operational hold process as it would be a bear for your new account reps to explain or train on how this works.

Again,I would check into compliance standards before aggressively putting this practice into play.

I think form a regulatory standpoint we are OK, because our new accounts will never be subjected to the "new account" holds. Therefore, I think we are treating our new customers more leniently than the law allows.
Because we currently place CBC holds for our existing customer base (and will continue to do so) we already monitor and audit this process on an ongoing basis.
Thanks for your help!
Leslie

My understanding is: you want to be a delayed availability bank for the first twelve months after the account is opened. Then, you would normally expect to become a next day availability bank. When Reg CC first took effect it had a two-year phase in period; i.e. many banks disclosed their hold policy and, in the same disclosure, indicated it would change on September 1, 1990 and spelled out what the successor policy would be. As long as you have an "old" examiner, there should not be any question about your ability to liberalize your policy based on the passage of time.

Your disclosure could use model language in most respects, but the first (delayed availability) portion might be prefaced with, "For the first twelve months after your account is open…" The second (next day availability section) could begin, "After your account has been open for twelve months…" You might bold face the prefatory language and put light borders around the paragraphs to segregate the first and then the second time periods.

Retaining the right to extend your status as a delayed availability bank is the drafting challenge. For the sake of discussion, at the end of the first section (delayed availability) you could add: "If in the first twelve months your account is open there are difficulties in its handling, for example, high volumes of returned checks, either deposited into or written on the account, we reserve the right to extend this delayed availability policy for an additional year. If we decide to take this step, you will receive written notification." This is not significantly different than your language, aside from the fact that I would not expect the customer to understand the reference to "Regulation CC."

You should avoid references to "new account" or "new customer" in your dislcosure. Those phrases will have engrained meanings to many reviewers. References to case by case holds would be in the second section. Exception holds would be referenced after the second section.

As you note, routinely delaying availability for two and five days on local and nonlocal checks is your bank's prerogative, regardless of your reason. However, the comments above might be a fair indicator of the initial confusion this approach will generate among those attempting to analyze it; it might be prudent to keep a file memorandum explaining your rationale. (You might not be there to explain it when the day comes.) In any case, it's going to be one long disclosure.

My additional caveat would be - It's going to be one long disclosure that neither your customers or your New Accounts people will want to deal with.

However - you will need to aggresively train your New Accounts people to properly explain that disclosure at account opening. And that is something that will be easier said than done.