Well I came across another "boon" to customers under Privacy and Information Security.

A very large bank in our area will no longer verify funds, even bank-to-bank. Now I know verification of funds was never a guarantee that the check would be paid, it was still helpful to know for purposes of placing a Reg CC Hold. If we verified there were NOT sufficient funds in the account, we could place an Extended Hold on that check.

However, we cannot place an extended hold just because the bank will not verify funds in the first place.

So - we get to decide if we will even accept these checks for deposit in the first place.

Or we can simply start placing case-by-case holds whenever the customer's collected balance is not sufficient to support immediate credit.

Or we can change our Reg CC policy entirely and start placing holds on EVERY deposit.

Either way, the customer will experience even more inconvenience as banks try to protect themselves from Uncollected Funds Losses, Privacy concerns, and Information Security issues.

Have any of you run accross this situation, and how are you handling it?

I have heard of it in Alabama and Florida. I think everyone is running scared right now. Until we see some clarifications, probably in court, I don't expect to see much change. If they are going to err, they are going to err on the side of safety.

It seems strange to me that banks have elected to stop the verifications since each regulator I spoke with indicated they felt it was covered as an exception. They emphasized diligence to avoid falling prey to a pretext phone caller, but they did acknowledge it as a legitimate industry practice. I guess this is where the pitfalls come in--how diligent is diligent? And do you really want to try to explain it to a judge.

[This message has been edited by Brenda Canterbury (edited 12-05-2001).]

I agree, all regulators have told me it is an exception and we can continue to tell merchants and other banks that there is or is not sufficient funds for the requested amount on the account in question.

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Bill Dean
Opinions stated are not necessarily that of my employer.

I guess this situation poses a few issues:

1. Have these large banks raised the bar on Information Security? If a smaller bank still provides funds verification, will it be open to liability because it's security standards are no longer "commercially reasonable?"

2. Will this situation create a consumer backlash? IOW - if folks start getting their checks handed back to them with the comment "We cannot accept your check because your bank refuses to verify funds. You'll have to pay by cash, cashier's check, credit/debit card, etc" - will that create an outcry? Will Congress get involved and mandate some sort of verification procedures? (OMG - I wouldn't know where to start with that....)

3. Is this the beginning of the end of checks as we know it?

Washington was made painfully aware of benefits of electronic processing when millions of checks were sitting on runways following the terrorist attacks on 9/11. The articles I have seen indicate we can probably see a real push toward electronic processing, since they never missed a beat on 9/11.

Also, about the hold reasoning...I would argue that if we are unable to verify a check, it should qualify as an safeguard exception hold for up to 7 or 11 days (local or nonlocal, respectively). We should be able to check "other" and note "unable to verify check".

Nope - I'm told that "unable to verify funds" is not an acceptable reason for Reg CC. Reasonable cause to doubt collectability cannot be applied to a class of checks (12 CFR 229.13(e)1.

Checks drawn on a bank that refuses to verify is a class of checks. You have to have a better reason to doubt collectability. Barring reading about the bankruptcy filing of the check maker, or perhaps knowing about another check from the same issuer and account for the same or lesser amout being returned for NSF, I don't know that you have reasonable cause.

If you try to use reasonable cause, I can almost guarantee that you will have significant Reg CC violations.

I'm just trying to think outside the box on this one, but how about if you place an exception hold for reasonable cause with the statement "information from the paying bank indicates the check may not be paid."

If you call the paying bank and say "is this check good" and they say "I cannot tell you that" then you could rightfully say "information from the paying bank indicates the check may not be paid."

Anybody agree (I know that it's a long shot, but I thought I would throw it out).

w/the caveats that I dont work for this outfit AND my employer reviewed the program and decided that it wasnt for it (too costly based upon the expected results), Primary Payments Systems, Inc. offers a service that might help you.

This Program involves participating banks (allegedly the 23 largest banks in the country and hundreds of smaller banks) sharing information about check deposits and creating "files" of this info which are then transmitted by them to PPS which creates a database of the info. PPS then checks the submitted info against its database and transmits "files" to the participating banks before the midnight deadline. A participating bank then reviews the PPS "file" to determine whether the check deposited MIGHT be paid.

The Program only works if the deposited check in question is drawn upon a bank that is also participating in the Program.

The Program isnt designed to be a substitute for notice of dishonor under Reg CC or UCC 3 and 4, nor is it an agreement btwn the participating banks to provide early notice of dishonor. It is an early warning system designed to provide the depositary bank w/addtl info about whether a check MIGHT be paid. Importantly, any participating bank can change its mind after providing info about whether the check MIGHT be paid.

Before we decided against the Program, we didnt get an answer as to whether any regulator had blessed the Program as a "legitimate reason to doubt collectability" under Reg CC.

Also we wondered if disclosing the check info was a potential GLB violation, however PPS opined that its serice met the fraud exception contained in GLB. We thought their thinking was too broad on this point, basically because the Program focuses mainly on those that may be overdrawn at their bank, more than fraud.

For those that are interested it is called the Deposit Chek Program and PPS can be reached at 480-483-4610. Again I dont work for PPS.

If anyone out there is using this service, id be interested in whether it has been worth the cost and of any other issues that have cropped up.

I AM NOT ENGAGED IN PROVIDING LEGAL ADVICE AND THE VIEWS EXPRESSED ARE NOT THOSE OF MY EMPLOYER

If "unable to verify funds" won't fly--there's always the case-by-case on a smaller check to buy yourself some time. If check deposits exceed $5,000 there's the dreaded large deposit safeguard. And for that particularly obnoxious customer, there's "Sorry we won't be taking that for deposit since we are unable to verify funds; however, we'll be glad to send it for collection. And, by the way, the fee is $10.00".

Since we typically don't place holds on deposits by responsible, established customers, there must be some reason we're deciding to take a second look at the item. I've learned through the years that you had better listen to that inner voice when it is trying to warn you that something just isn't right.

Here's the situation I'm thinking of - a customer has an average balance of $80. At the time of the deposit they may have $200 in the account, and they want to deposit a $4,300 check drawn on one of these "non-verifying" banks.

The routing number is local, so IF you accept the deposit, you can only place a 2-day hold AND you must give $100 next-day availability.

We all know that it is entirely possible that the $4,300 check will be returned the day the hold drops off - but meantime the customer has already withdrawn the funds in cash.

So - do we tell our customer, "Sorry, you do not have enough money in your account for us to accept this check for deposit."? That should go over well.....

At least if we could call on the check we get a little more guidance for that "inner" voice as to how to handle the transaction.

[This message has been edited by Bonnie M (edited 12-06-2001).]

Bonnie - One of the problems we encounter when dealing with a hold as you described is our system hold parameters. The parameters work from the date the hold should expire. This means you have to set it to expire the day before the money is to be available so the hold falls off after nightly update. As you indicate, we are still on the hook for a possible return, especially over a weekend.

Occasionally we will set the hold expiration date the day the funds are to be available (especially if it is a Monday) to hold funds as long as possible. We mark our calendar to release the funds first thing in the morning (before we open). This gives us a chance to review the account one more time, and we should be past the call back deadline if the check is over $2500.

I've never seen this anywhere in writing, but we've never been challenged on it by an examiner. If we shouldn't be doing this, I need to know.

Recently at a seminar, we were told that you could place a check in a savings account (passbook savings) and then you could hold checks for 100 days......

Is that true?

It is true that Reg CC doesn't apply to savings accounts, but I wouldn't try that one. We should still be reasonable with our hold time frames. I would venture to guess that if we did that, we would have a new regulation or an amendment to Reg CC to include savings accounts very quickly. Congress frowns on "harming" consumers. I doubt our examiners or the judge would care much for it either!

Kathy--on the same topic; a seminar leader once stated that we could hold ALL of the money in a NEW account until the accout was 30 days old! I wouldn't dare try it; but I've often wondered if that is true.

Would new customers be happy that they opened their new account with us---I think not. Not to mention revisions to reg.

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Opinions expressed are not necessarily those of my employer.

I doubt that the examiners, customers or the public in general would like to know that a bank does that.....I really had never heard of holding a savings deposit for 100 days in that respect. I was quite surprised when I heard that.... Guess you learn something every day.......even though it is things that you shouldn't do.....

CAnderson, I have heard that also about the NEW account.....30 days hold.....I think if you tried that....your new customer...would quickly become a "former" customer.....

Thanks for the input...

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The views expressed, herein, are not necessarily those of my employer