EFT System and Automatic Holds - Mary Beth Guard

EFT System and Automatic Holds
by Mary Beth Guard, BOL Guru

Question: We are beta-testing a new EFT system. Our old system was not real-time. Our test bank is finding that the new system is showing funds being held on the customers? accounts when they check it online. For example, if the customer uses her debit card at a gas pump, the system automatically holds $x amount for two days and that hold/charge shows on the account. First question: Don?t we have to change our Reg CC disclosure to reflect this activity?

Second question: Apparently this has always been common practice with credit cards, but now it is taking place with debit cards, so it affects checking accounts. Can the merchant hold funds like this without written notification to the customer? I realize these may be dumb questions, but I would really like some guidance. I would particularly like to know what the examiners are saying about these issues.

Answer: The Reg CC funds availability rule does not address a merchant hold of funds stemming from a debit transaction.

There are no ?required? hold processes of which I am aware. What typically happens is a request comes to the bank. It is serial numbered. The debit is then processed and when the serial numbers match, the hold drops off. If there is no debit within a reasonable time, the hold drops automatically. You should analyze the time it generally takes for debits to clear and time your releases based on that. Extended holds will cause problems, especially when overdrafts occur. I am aware of no notice requirements. The hold abuses are often seen in gas stations and hotels. This subject is probably addressed deep within the recesses of the card issuing entity?s rules. Ask your rep next time they call on your bank.

First published on BankersOnline.com 4/26/04