Expediting Regulation CC

As part of its regulatory improvement process, the Federal Reserve is proposing changes to Regulation CC and simultaneously to the Commentary. The changes are designed to clarify and update the regulation, simplify compliance, and reduce regulatory burden. The proposal is lengthy and deals with numerous issues relating to notifications and check processing rules. In this article, we discuss several of the notification proposals.

Regulatory Review
The review of Regulation CC was made under the Riegle Community Development and Regulatory Improvement Act of 1994. When reviewing a regulation without specific amendments to the act, in this case the Expedited Funds Availability Act, the FRB has the opportunity to review and evaluate any aspect of the regulation. Because the process is for the purpose of improvement and not driven by specific statutory changes, this is the time you are most able to influence the results with your comments. This is a particularly important time to provide the FRB with information about your procedures and any problems you have in complying with Regulation CC.

Generally, when an agency proposes a regulation for comment, the issues raised in the proposal are the only issues open for consideration. However, the regulatory review process is more open and it may be possible to persuade the agency to considerissues that were not specifically raised in the proposal. In this case, the agency would need to publish the new issue for comment before taking final action on it.

"Available for Withdrawal"
The Commentary would clarify that this term includes funds that are being held by the bank to satisfy obligations of the depositor such as levies or court orders. The FRB proposed to take the position that the funds are available for purposes of Regulation CC if they are available to put to uses for which the customer is obligated. The funds do not have to be available to leave the bank in the customer's hand or at the customer's order. E. 229.(d)-2

Amount of Deposit
The present rule requires that a hold notice provided to the customer identify the amount of the deposit from which funds will be held. This may pose problems when the check subject to the hold is part of a larger deposit. Although the amount of the check is known, the amount of the deposit may be different and, if so, difficult to identify. The Board is proposing to revise both the exception and case by case hold notices to delete this requirement. ?229.13(g)(1)(i)(B) & ?229.16(c)(2)(i)(B)

Exception Holds-Cash Withdrawal
The interaction of the availability rules, the cash withdrawal rule (?229.12(d)), and exception holds have been the focus of many questions. The Board does not propose to change the time periods for availability and cash withdrawal. However, the proposal would provide more detail on how the cash withdrawal rule works with the exception holds. As proposed, the Board takes the position that the cash withdrawal rule may not be used to extend the exception hold periods. ?229.13(h)

Emergency Holds
In situations when a hold is placed because of an emergency, the notice would need to be provided within a "reasonable" period of time. This would relieve the bank from the requirement that the notice be provided no later than the first business day after it learns of the emergency. It recognizes that the same emergency that caused the hold may prevent the bank from preparing and sending notices. ?229.13(g)

Special Branch Policies
In response to the increasing complexity of branch structures, emphasis on extended hours to provide customer service (particularly under CRA) andlocation of limited service branches in supermarkets, the Board is proposing to provide guidance on the specificity requirements if branches do not have uniform availability policies. The proposed revision to the Commentary would clarify that the bank may have branch-specific policies and a branch specific disclosure. The bank could use any reasonable method in good faith to allocate customers to branches for disclosure purposes. A. 229.16(a)-3

Contractual Branches
A major purpose in revising a regulation is to ensure that the regulation accurately reflects the structure and practices of the industry. Because of the developments in interstate branching and contractual branching, the Board is proposing to make several clarifications on how transactions at contractual branches should be treated for purposes of funds availability. For example, funds would be considered deposited when received by the contractual branch teller. However, the funds received at a contractual branch would be treated as though they were received at proprietary ATMs and not by the depositary institution's teller. The proposal would treat the contractual branches as "off premise" facilities, allowing a noon cut-off. The bank receiving the deposit would be deemed to be acting as an agent of the depositary bank for purposes of determining whether the check is local or non-local.

ACTION STEPS

Review a sample of recent hold notices. Compare these to the proposed changes and evaluate whether the changes would make compliance easier.
Meet with tellers and branch managers to discuss how they identify transactions for holds. Discuss the proposed changes and get their reactions and ideas. Use these responses in your comment letter.
Review your institution's branch structure. Identify any branches with service hours that differ from the bank's normal hours. Also identify any supermarket, shared, or contractual branches. Keep this list handy for implementing a final rule.