Question & Answer

Question: Our bank recently placed an exception hold on a large deposit made by a fairly new customer. Because the customer was upset about the hold, we took contacted the bank on which the check was drawn and learned that the check was good and had been paid. Do we violate any rules if we release the hold early?

Answer: Although there are sometimes customers who think differently, holds are designed to protect the bank from loss. The situation you describe - a customer not well known to the bank making a large deposit - is precisely the kind of situation for which Regulation CC's exception holds are designed.

Regulation CC specifies situations when the bank may impose a hold, and provides time periods that are permissible for the situation. The time periods for holds are outside limits. You can use shorter time periods if you consider that the bank is adequately protected.

When you place a hold and notify the customer, you are not making a commitment to hold the funds for the specified period. You are promising that you will not hold them any longer than the stated period of time. You are free to release the hold early.

In the situation you describe, the bank learned before the hold period expired that the check deposited had been paid. The hold and the hold notice have served their purpose. Although you may legally continue the hold until the specified date, you may also release the hold. If you choose to release the hold, be sure that the your customer knows that you have given them such good service!

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 5, 3/96