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Reg CC - Holding Funds on a Return Item

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When we receive notice of non-payment of a deposited item from the paying bank, Reg CC section 229.33 requires that we notify the customer when it is a large item. Can we hold the funds in the account until the item is returned and do we have to provide a Reg CC hold notice? Does this also apply for any amount, not just large items?

First, the easy part. The notice requirement in section 229.33 applies to any return item (or notice that a return is coming), regardless of amount. When you learn of the return (actual or impending) you've got until the next business day to notify your customer. Some banks obtain waivers of that notice from business accounts. There is a similar provision in the UCC and a waiver of that provision is also often obtained from business accounts.

As for holding the funds -- yes, you can do that, using the exception hold option under section 229.13. Be aware, however, that the date of deposit (from which you count the days) is the original deposit date, so the hold won't buy you much unless you decide to go over the limits of 7 or 11 says (which you can do in these cases). You also can avoid a hold altogether and simply charge the check back awaiting its return. Suspend the funds until the check comes back.

First published on 11/26/07

First published on 11/26/2007

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