Hello

If a consumer transfers funds from an external account to their account at our institution, does Reg CC apply on the funds availabilty? Our bank applies a flat 3 day hold to all funds transfered in from another institution on the entire amount. If Reg CC applies does this violate the two hundred dollar rule?

Essentially when a client executes an external transfer they are actually originating a one time ACH debit from their account at the other institution and their account at our instituion is the settlement account for that ACH debit so perhaps there are no limits to the number of days the bank can hold the funds but I just wanted to know which rules applied.

thanks,
CJ

I have to assume that funds "transferred" from an external account reach your bank via the ACH system or a wire transfer. If that is correct, their availability is addressed in the first paragraph of your initial disclosure under Regulation CC:

Our policy is to make funds from your cash and check deposits available to you on the first business day after the day we receive your deposit. Electronic direct deposits will be available on the day we receive the deposit. Once they are available, you can withdraw the funds in cash and we will use the funds to pay checks that you have written. (Emphasis supplied)

If you fail to make these funds available in this time frame you are technically violating Regulation CC, but your initial disclosure is just reciting what is otherwise required by law and the NACHA rules long before Regulation CC came into existence.

Ken...perhaps I'm just dense this morning, but if the funds are held longer than the 'next-day', which a flat 3 day hold would involve, wouldn't that be in violation of Regulation CC unless there was a reason to employ an exception hold?

The fact that they plugged the highlighted statement into a disclosure about holds on deposited checks has caused a lot of confusion in the intervening years. Regulation CC was implemented to deal with holds on deposited checks, but they did gratuitously plug in some language on electronic payments. There is no check in this example and the answer would have been the same if there was no Regulation CC.

The NACHA rules dictate the availability of ACH credits. The hold violates the NACHA rules, but I overstated my case when I said it did not also violate Regulation CC.

From the Reg CC commentary:

P. 229.2(p) Electronic Payment

1. Electronic payment is defined to mean a wire transfer as defined in §229.2(11) or an ACH credit transfer. The EFA Act requires that funds deposited by wire transfer be made available for withdrawal on the business day following deposit but expressly leaves the definition of the term wire transfer to the Board. Because ACH credit transfers frequently involve important consumer payments, such as wages, the regulation requires that funds deposited by ACH credit transfers be available for withdrawal on the business day following deposit.

they do reach us as an ACH but the bank is defining the credit to the account as the settlement of the ACH debit that posts to the external account, thereby circumventing Reg CC altogether. Is that permitted.

Thanks Ken,
CJ

Your bank doesn't get to supply its own definitions...your initial disclosure simply reflects both the law and the rules of the clearing house. It is also what you told your customer you would do.

Thanks Ken.

Let's try this approach. I'm going to make some assumptions here, and you (Doug) should refute them if I am wrong:

1. The transfers are completed by your customer's request that your bank complete a transfer from the other bank using an outbound ACH debit. That is the only ACH entry that is involved in the transfer.

2. The credit to your customer's account is not received via the automated clearing house. Instead, it is created as a credit entry to his account by your bank, offsetting the debit general ledger entry to the Fed (or your correspondent) account.

That credit to your customer's account is clearly not an ACH credit or an incoming wire transfer, and therefore it is not an electronic payment for purposes of section 229.10(b).

Since it is not a cash deposit, an electronic payment or a check deposit, it's not subject to any of the availability requirements under Regulation CC.

So the bank is free to impose a three-day availability delay for such a transfer credit in order to allow for the time required for the outgoing ACH debit to make a round-trip if it's not honored by the RDFI.

If those are the facts, I have no problem with the conclusion.

Yes, John is absolutely correct regarding the ACH credit to the account, it is not a transit item that comes through ACH clearing house but an entry from a GL.

Therefore, given those facts, the bank can place a hold on the credit. I did follow up and look at the trancode which is not an ACH credit trancode but a Misc credit trancode with a description of External Tr Cr so technically the credit is not an ACH. My error.

Thank you so much for the information, I feel honored that both Ken and John chimed in.<g>

Have a great day gentlemen.

Regards, CJ

Given those facts, agreed.

Knowing what happened and knowing the definitions are two of the major steps in figuring out how a regulation affects a given set of facts. That's why we sometimes have to ask questions before we can suggest answers.

And, as you've often taught us, read the commentary!

I too have a question regarding the availability of bank-to-bank transfers if they are processed as an ACH transfer. According to Reg. CC below it mentions that next-day availability is required when an electronic payment is received when the receiving bank (our bank) has received both payment in collected funds and the account and amount to be credited.

Since ACH items can be returned for insufficient funds, wouldn't it be viable to place a 3-day hold on these transactions? Please confirm as our bank will be offering this feature beginning of 2016 and is disclosing a 3-business day hold. Thank you!

Sec. 229.10 - Next-day availability.

(b) Electronic payments--

(1) In general. A bank shall make funds received for deposit in an account by an electronic payment available for withdrawal not later than the business day after the banking day on which the bank received the electronic payment.

(2) When an electronic payment is received. An electronic payment is received when the bank receiving the payment has received both--

(i) Payment in actually and finally collected funds; and

(ii) Information on the account and amount to be credited.

A bank receives an electronic payment only to the extent that the bank has received payment in actually and finally collected funds.

I don't understand? You are initiating a debt to the other bank on behalf of the customer. You are not receiving an ACH credit. How is this an electronic payment?

In reading previous posts, if I can confirm how these credits are coming in that will determine whether or not the bank is able to place a 3 business day hold on the incoming transfer. I'm assuming that they are not coming in as an ACH, but will confirm.

If your bank is initiating the transactions to fund deposits to your customers' accounts, you aren't dealing with an electronic payment. Your part of the transaction isn't governed by Regulation CC at all.

Since Reg CC does not govern ACH debits if we want to apply a longer wait for these do we need to clarify that Electronic direct deposits do not include these transactions?

There's no requirement to do so, but if you regularly allow your customer to initiate ACH debits to their accounts at other banks to transfer those funds to their accounts at your bank, it would be informative for your customer. You could put the information on the web page the customer uses to originate the transaction.

We allow customers to open and fund accounts online and I thought it might be confusing to consumers if we say electronic direct deposits are available the day it is made but then not allow funding using credit cards and ACH are not.

I agree, since customers often don't understand the jargon that bankers use. To them, there are electronic deposits and "normal" over-the-counter deposits.

I had a long chat with a halfway informed customer service rep at my bank today on this very topic. They hold funds for 3 days and I was wondering how that would comply with Reg. CC. He sent me some info about their Moneylink service they use to make the transfer, but he did say the payment to them comes over as an ACH. Sounds like what is likely going on is what John mentioned above. The nuts and bolts of it is that no ACH credit actually comes in and the "electronic transfer" just settles an initiated ACH debit? That's pretty sucky. I kept telling the guy that even if a deposited a check from my mom it would be available sooner than that. He started talking about availability for non-local checks, so I had to explain that there is no such thing as non-local checks anymore.

If I did it the other way around and sent the funds from the bank account I want to transfer from to the bank account I want the money to end up in, then would Reg. CC apply? I never really worked the front lines, so operational stuff tends to go over my head sometimes.

Reg CC would apply on the account receiving the ACH credit, and would require that the funds be available on the business day following the other bank's receipt of the item. But NACHA rules (Operatiang Rules section 3.3.1 Availability of Credit Entries to Receivers) require that for a "Credit Entry that is not a Same Day Entry, an RDFI must make the amount of the credit Entry received from its ACH Operator available to the Receiver for withdrawal no later than the end of the Settlement Date of the Entry, subject to its right to return the Entry under these Rules.

"For a credit Same Day Entry, an RDFI must make the amount of the credit Entry available to the Receiver for withdrawal no later than 5:00 p.m. in the RDFI’s local time on the Settlement Date of the Entry, subject to its right to return the Entry under these Rules and except as noted below.

"An RDFI in the Atlantic Time Zone must make the amount of a credit Same Day Entry available to the Receiver for withdrawal no later than 5:00 p.m. Eastern Time on the Settlement Date of the Entry, subject to its right to return the Entry under these
Rules."

Each of those NACHA requirements requires the credit entry be available earlier than Reg CC would. So the NACHA requirements take precedence over Reg CC in such cases.

To illustrate, if you sent the transfer on Monday and your other bank received it as an ACH credit on Tuesday, Regulation CC would require that the funds be available by 9 a.m. on Wednesday. But for a routine (not Same Day) ACH credit, those funds should be available to you by the end of Tuesday, and for a Same Day credit, availability would be required by 5 p.m. Tuesday except in the Atlantic Time Zone, where it would be available by 5:00 p.m. ET (6:00 p.m. Atlantic).

Banks in Puerto Rico and U.S.V.I. are affected by the Atlantic Time Zone rule. They don't observe DST, so they have the same time as the EDT from March to November but they are one hour ahead of EST from November to March.