Is it appropriate to place a hold on a $4,000 credit card check deposited into an account that is not new but never has more than $30 in it?

If you have reserved the right to do so in your funds availability disclosure, you can always utilize a case-by-case hold to buy yourself some time to determine whether the item will clear. A local check should be available on the 2nd business day and a nonlocal check should be available on the 5th business day. You must give the customer $100 by the 1st business day.

You can also try to call to see if the item will be paid. If not, you obviously have a case for a collectibility hold until the 7th or 11th day, local and nonlocal respectively. If the customer qualifies as a repeat overdraft customer, you can utilize that as a safeguard exception reason as well. The $100 rule does not apply to these type exceptions.

I can tell you that many have searched for ways to handle credit card checks differently than "normal" checks and there doesn't seem to be a provision for it. So as the original question specified credit card check, I'd just ignore that part of the description and handle the situation as you normally would.

I definitely would not target credit card checks or state that on your REG CC hold form. It would definitely be an exam issue. As previously stated many of us are always looking for ways to do REG CC "holds" on that check. Usually , I look at holding another account as a savings account because we do not classify that account in the REG CC transaction accounts definition at our bank.

If a bank does not feel comfortable with a credit card check, I suggest that you try to verify the funds. Most likely you will not be able to do so. Now you have a reasonable cause to doubt the collectibility of the check - an exception hold reason. You didn't delay this because it was a credit card check. You delayed it because you were unable to verify the funds.

A caveat to that David however exits in the Commentary for 229.13(e) - Paragraph 4:

4. The regulation provides that the determination that a check is uncollectible shall not be based on a class of checks or persons. For example, a depositary bank cannot invoke this exception simply because the check is drawn on a paying bank in a rural area and the depositary bank knows it will not have the opportunity to learn of nonpayment of that check before funds must be made available under the availability schedules. Similarly, a depositary bank cannot invoke the reasonable cause exception based on the race or national origin of the depositor.

I have heard many examiners state that simply not being able to ask the Bank if there are sufficient funds is not reasonable doubt. In addition, several "Large" banks are now adopting a policy (in the name of fraud prevention and Privacy no less!) of not verifying checks over the phone, even to other banks.

From what I understand, the problem is that the credit card checks are returned late because it took that long for the creditor bank to realize the line was overdrawn. IMHO, If the check is returned after the midnight deadline, then the depository bank should play tough and refuse to accept the return.

A bank could adopt a procedure of placing a case-by-case hold on these credit card checks. Also, if the check is over $5,000, you can place the extended hold on the amount above $5,000.

Finally, if your customer is a chronic NSF/OD account, you can use that as an Exception reason for an extended hold.

Credit Card checks are a real problem. As I understand you have the right not to accept any check for deposit. If you have accepted it for deposit, then you are bound by the hold rules. A credit card check is in reality an application for a loan from the card issuer and may or may not be accepted. We take the policy that if the account relationship is not such that we feel we could recover the check amount it is not accepted for deposit, and only accepted for collection if the customer agrees, and then sent as a special collection item. Tellers are trained to pass the decision along to their teller supervisor.

We use account balance, average balance YTD, number of NSF this year and last year plus whether the customer has more $$ in savings or a CD as the determining factor no mattter what type of check. Credit card checks do have a higher risk that some other types of checks, and I know we would put a hold on this item based on this customer's account history if the customer had no other accounts with sufficient funds to cover this returned check. The key should be "Could we recover this amount from this customer?" not "This is a credit card check." As long as you don't put holds on all credit card checks no matter what the customer's account history is(for instance a hold for a $500 credit card check for someone with a $2,500 avg balance would probably not be appropriate) you will be OK.

Anonymous references the Commentary for 229.13(e) - Paragraph 4 and then stated:
I have heard many examiners state that simply not being able to ask the Bank if there are sufficient funds is not reasonable doubt.

I would like to hear from banks that have heard this from examiners. This is an inaccurate and "loose" interpretation at best. If I can't verify funds, I have a "reasonable basis for believing a check is uncollectable." The general rule for doubting collectibility states that there is "the existence of facts that would cause a well-grounded belief in the mind of a reasonable person" that the check is uncollectible. How can you not have this if you can't verify the funds?!

Anonymous continues: In addition, several "Large" banks are now adopting a policy (in the name of fraud prevention and Privacy no less!) of not verifying checks over the phone, even to other banks.

We have discussed this here before, but this is absolutlely wrong. Privacy does not require banks to stop prudent banking practices. This is clearly a section __.15 exemption.

wpdcad may have provided the best advice for handling credit card checks. You are not required to accept any check for deposit. So you have 2 options is you are concerned about a credit card check:
1. refuse the deposit;
2. place it for collection. This is not a deposit and therefore, not subject to Reg CC.

I agree with David...when a bank routinely makes calls to verify funds (not just on credit card checks) and relies on the information it receives, it is reasonable to delay availability when it is unable to verify funds. My interpretation is based on the same language from the commentary that is cited as a caveat to David's response. The point is, this is a gray area. Different banks and different individuals handle ambiguities differently.

Being an effective compliance officer means first, you know the rules well enough to identify the shady areas. You need decide in advance how far you are willing to go into them and map the journey using business judgment rather than a desire for combat or an unrealistic belief that you can eliminate all risk of criticism.

Once, during a consulting engagement, I explained a strategy that would allow the bank to take an approach one of the officers had advocated. It was clear it would draw criticism, but I was confident they would prevail. At the end of my explanation, the CEO just shook his head and said, "We are not doing it. I am looking for bigger battles to fight, ones that have a pay off when I win." Clearly, I was working for a real banker.

If this forum works, it will always raise more issues than it resolves. Its value is the thought processes it provokes and the fact that we get the benefit of mistakes made by others rather than having to run up larger tallies of our own.

Has anyone sent a credit card check for collection? I called one credit card company and they said that the check would be returned to the bank unpaid, "They don't issue bank checks for collection items." Also does anyone have a procedure for collections they are willing to share?
Thanks.

We try and send all credit card checks deposited for collection. It takes about 30 days, but it is better than having to eat one.

What a shame! BofA and Wells both use Privacy as a scapegoat so that they aren't "bothered" by these smaller banks with their pesky interuptions. I was conducting a seminar in Denver last week and when discussing Reg CC I mentionned trying to verify funds. Someone mentionned this problem with Wells. Another attendee (from a large bank that I won't mention) said that his bank had an agreement with Wells, and that Wells would verify all funds for his bank because his bank was so large. They also had a special number to call.

If you try to verify funds but cannot (even if the bank refuses to verify) I would say that you have "the existence of facts that would cause a well-grounded belief in the mind of a reasonable person" that the check is uncollectible [a reasonable cause under section 229.13(e)]. Therefore, you could place an exception hold on these checks because you cannot verify funds.

As a community bank, we operate under the concept, we do not verify for the big banks unless they give us their private direct numbers for us to verify. We find this works for normally a month or two until that person is transferred or leaves, then we have to start again. Many of the employees at the "big" banks want to get their answer and will make a deal with you for the future, those that won't we don't verify.

Good strategy, Louise! Fight fire with fire

The special number to call is for "BITS" members which is a group of very large banks involved in a security and fraud prevention program.

I had sent a few requests asking what it would take for our Bank to become a BITS member, but the person at Wells Fargo has not responded to any of my requests for information.

Does seem like a "Big Bank" vs. "Small Bank" squeeze. I would caution that before taking the very aggressive stance of using the Exception Hold when a bank refuses to verify, you should check with your regulator, and get something either by Voice Mail or in writing. Otherwise you could be in for a very rough time at your next exam.

From The Financial Services Roundtable web site:

Fraud Steering Committee Co-Chairs: Bob Jones, FleetBoston, and Shirley Inscoe, First Union

The BITS Fraud Reduction Initiative was authorized in April 1998 to create a nationwide program to reduce check fraud, primarily through information sharing, shared databases, and by implementing standard industry fraud definitions and benchmarks. The Fraud Working Group (FWG), in collaboration with the American Bankers Association (ABA) and other industry groups, has succeeded in increasing the participation of banks of all sizes in the Fraud Reduction Program. Participation in a national shared account database has grown to 155 million accounts. The Program has already contributed to reduced check fraud losses for its participants, and will now expand to measure and report on loss avoidance data. The FWG, consisting of senior risk management professionals from 20 institutions, oversees seven subcommittees on specific risk management topics.

For more information, contact Robin Slade robin@fsround.org, Director, 505/466-6434.

Bonnie said: "I would caution that before taking the very aggressive stance of using the Exception Hold when a bank refuses to verify, you should check with your regulator, and get something either by Voice Mail or in writing. Otherwise you could be in for a very rough time at your next exam."

Sure they may question you on this, but Regulation CC says if I have a "reasonable cause" to doubt the collectibility of a check I can place an exception hold. Not being able to verify funds is definately a reasonable cause. Off the top of my head, I believe the definition of "reasonable cause" is "the existence of facts to form a well grounded believe in the mind of a reasonable person that the check is uncollectible." If XYZ bank will not verify the check, how can I not have a reasonable cause to doubt the collectibility?

If the examiners question you on this, you should present the facts. If they cite you for it, I believe that it is only becuase you don't know how to argue your point well enough.

That's a good deal except that ultimately the whole thing may tend to drive customers to the Financial Institution Roundtable banks. So long as everyone banks with these 20 large banks, the other banks will be able to verify funds.

This will have the same effect the ATM fees are having. Why open an account at 1st Little Bank of Freedelphia, when they only have 2 ATM machines? Every other ATM from San Francisco to New York will charge me a fee--as will 1st Little Bank. Instead, I will just open an account at Bank of America and use their ATMs, which are as ubiquitous as Starbucks. I'll just have to get used the fact that BOA's customer service is just as bad as Starbucks' coffee.

David,
This paragraph from the Commentary is the reason I am hesitant. I have placed a call to our regulators for clarification in light of the Wells/BofA policies. Unfortunately, it may take a few days or so before anyone can get back to me.

This is from the Commentary for 229.13(e)

4. The regulation provides that the determination that a check is uncollectible shall not be based on a class of checks or persons. For example, a depositary bank cannot invoke this exception simply because the check is drawn on a paying bank in a rural area and the depositary bank knows it will not have the opportunity to learn of nonpayment of that check before funds must be made available under the availability schedules. Similarly, a depositary bank cannot invoke the reasonable cause exception based on the race or national origin of the depositor.

Bonnie, we have adopted a very strict procedure for accepting credit card checks for deposit. I got help in formulating the procedure from my regulator. You're correct in the fact that we can't classify checks, but are these really checks? They are drafts, like someone said before, they are unsecured loan proceeds. There is no way that we can verify that that loan will be approved upon presentation to the credit card company. I live in a small college town and see a lot of these checks. We are not protecting ourselves at all by slapping a 5 to 11 day hold on them. My regulator says send em all for collection, or refuse to except the deposit. Certainly don't let anyone payoff a loan with one.

If the customer has had an account with us for at least one year AND has a YTD average compensating balance, we'll accept the check.

When a customer gets upset that we're sending the check for collection, which by the way has a small fee attached, we tell them to go get an advance on the card and come back and see us with cold hard cash.

A lot of customers need education about using and accepting these checks as payment. Some credit card checks can only be used for purchases, others only for cash advances. Customers are appreciative of being informed of these possible problems. Some ask that we send it for collection.

Hope this helps. My regulator was very helpful in assisting us.

Deb Grooman-Wyogirl
Opinions stated are not necessarily those of my employer, but hopefully they are!

I agree Bonnie, but I'm not holding the check becuase it is a certain type or class. If I was doing this, I would say "all checks from BofA will be held" and this would be wrong. I'm saying, try to verify the funds. When you can't verify the funds, you have a "reasonable cause hold" which is not becuase it is a certain type.

wyogirl, Where do you send the credit card checks for collection?