Restitution on Reg CC hold issues

Sec 229.21 of Reg CC addresses a bank's civil liability if a bank "fails to comply with any requirement imposed under subpart B, and in connection therewith, subpart A, of this part or ........" A bank's Get out of Jail Free card is to show the error as a "bona fide error" which would exempt the bank from liability if the bank can demonstrate by a preponderance of the evidence that the violation was not intentional and that the bank had procedures reasonably adapted to avoid any such error.

In situations where the bank's own monitoring records reflect a material number of instances where holds were placed for too lengthy a time (should have been a 2-day case by case and was a 7-business day exception hold) or the amount of funds held was excessive (treating a cashier's check as if it were a local check), I doubt the bank can demonstrate that its procedures are reasonably adapted to avoid such errors. My concern is the account holders who may have incurred NSF fees or bounced check protection ODP fees because of the bank's check hold errors. Reg Z restitution calls for a look back period to the date of the previous compliance exam but I see no such guidance/requirement for Reg CC. Any thoughts?

When Regulation Z is violated, the consumer incurs damages that are readily calculated. When Regulation CC is violated; e.g. an illegal hold is imposed, there may or may not be any damages to the customer.

If an illegal hold had consequential damages to one customer of $1,000, that would be the amount the customer would be entitled to. If a second customer suffered consequential damages of $100,000, that would be the amount the customer would be entitled to.

Consequential damages vary among fact situations, have no limits, and cannot be calculated in advance.

Many thanks Ken. Always very insightful information. As to the look back period - would you follow guidance from Z and conduct a review back to the start date of the previous compliance exam?

Who is telling you that the concept of a "look back" applies to illegal holds?

Actually no one. I'm attempting to determine whether being proactive mitigates regulatory and financial risk. The bank seems to have clearly identified, thru an informal monitoring process, errors relating to hold notices that in all likelihood created negative financial implications for check depositors. I'm wondering whether I should: A) review the deposit accounts only of those customers already identified where an incorrect hold was placed to determine whether any NSF or bounce check fees were assessed due to the bank's errors; B) review all holds for a specific time period to determine whether any check hold caused financial harm to the depositor; or C) not worry about past issues and concentrate on increasing internal controls such as training, second reviews, etc to prevent future recurrences.

I pick "C".

I have to agree.

This would be very time consuming to research and the conclusions you could draw would be very limited.

If you feel compelled to do it, your steps would be:

* Identify the illegal holds
* If the customer did not incur a fee or an item was not returned, there were no measureable damages
* If an item was presented against funds illegally held, but the item was paid and a fee was incurred, the damage to your customer would be the amount of the fee
* If an item was presented against funds illegally held, the item was returned, and a return item fee was incurred, the damages would be the amount of the fee plus the consequential damages suffered by the customer.

That amount would be totally fact sensitive.

For example: Illegal holds are placed on mine and rlcarey's deposits. We write checks for the same amount. Both items are paid. So far, our damages are the same, the amount of the fee.

However, if both checks are returned, the effects might be dramatically different.

My check was to the liquor store. His was for his life insurance. My consequential damages could be limited to my embarrassment and the fee the liquor store charges for bounced checks. (Sure, I could be subjected to criminal charges, but I'm trying to present distinctly different outcomes.) Should Mr. Carey meet the event that would have triggered the payment of the insurance (but for the fact it was cancelled for nonpayment) his damages would be dramatically different, but subject to a completely objective calculation.

In a nutshell, if the customer doesn't sue you, there's really no way to put a dollar figure on the damages he incurred by wrongful dishonor of a check because of an illegal hold. I just cannot figure out what the actual value of your research would be.

Pragmatically, my first question would be, "How big is your bank and who are your regulators?" The CFPB would expect a look back to identify and remediate customer harm, and doing so yourself would help prevent harsh actions on their part.

Would you please provide an example of when they have done so in a situation like this one.

I'm interested in this too InFairness.

fslic banker: you've identified the problem. Provide training, move forward and continue monitoring and training. As Kend & Randy are saying, don't worry about the past on this one. There's nothing you can do to quantify or mitigate the problems of the past issues at this point.