Had a question come up regarding the refunding of credit balances on a credit card. The customer makes a payment by personal check to the bank, the payment creates a credit balance. Customer requests, in writing, a refund of this credit balance. Reg Z states that if the request is in writing it must be refunded within 7 days. However, bank's procedure is to "hold" the refund for 10 days to ensure the check clears. Anyone familiar with this? Thank you.

I would refund under the guidelines of the Reg. not the bank's procedure. You can always wait until the 7th day and in today's envirnoment checks are cleared or returned within a few days anyway(usually).

Reg Z is what I would have my banks procedures to also.

I've asked a few more questions and was told that the bank waits for the check to clear before it issues the credit. If the check does not clear, the refund is declined until the check does clear which may be why there is 3 more days involved. But they couldn't tell me what they are referencing to allow them to do this. It probably shows that I'm not a deposit person (still learning), but is Reg CC involved in this? Thanks.

No Reg CC references deposit accounts only, not a lending function.

Thank you for your patience, but are you saying that whether or not the check is good does not matter? If the customer requests the refund of the credit balance in writing to the credit card company, it must be made within 7 business days regardless? The bank tells me if the check is returned the amount is applied back to the credit card (plus the fee for a returned check). If this all happens within 7 business days, then what happens to the credit? (It's late Friday afternoon, brain's starting to shut down) . Thanks.

In reply to:

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the bank waits for the check to clear before it issues the credit.

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I’m not sure what you mean by this. Are you saying they don’t apply the payment to the credit card account until the check clears? If so you better look at 226.10 and the commentary to 226.10.

Supplement I, 226.10: Prompt Crediting of Payments (01/01/93)

10 (a) General Rules.

Crediting date. Section 226.10(a) does not require the creditor to post the payment to the consumer's account on a particular date; the creditor is only required to credit the payment as of the date of receipt.

Date of receipt. The "date of receipt" is the date that the payment instrument or other means of completing the payment reaches the creditor. For example:

Payment by check is received when the creditor gets it, not when the funds are collected.

I also agree with Tina that Reg. CC does not apply.

Look at 226.7 and its commentary. This possibly could be your "way" out as for delaying the credit. However, seek legal advice! Is the credit balance actually a credit balance until the end of the current billing cycle? Just a thought, however before relying on this thought, I repeat seek legal advice from your council or regulatory advice from your regulator.

Here's some more info I received on my issue. My question is what is the relationship between the check clearing and the refund check being issued?

When the bank receives a credit balance refund request, it ask that the account be reviewed prior to sending out the CBR (credit balance refund). If the CBR is a result of a payment to the account, the bank has the drawing bank contacted to see if the check has cleared. If so, the bank issues the CBR. If not, the bank declines the CBR request until the check clears or is returned. If the check is returned, the bank then reverses the payment and the account will no longer have a CBR. Would it be better to have the returned check sent off for deposit collections? The bank's internal policy was designed to mitigate credit card losses based on fraudulent payments that result in CBR requests. Thanks again for your help.

I think you may be treading on thin ice. Your policy seems to conflict with the Reg. However, I guess it’s a question of when the credit balance is actually a credit balance. When the payment is posted, or when the billing cycle ends to show all activity on the account for that period?

I suggest you contact your legal representative and get an opinion letter.