Reg CC Holds on Repeated Overdrafts (Video)
In this Compliance Clip (video), Adam explains the two qualifications for using the repeated overdraft special exception hold and how one of those qualification is changing with the new Regulation CC amendments.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to discuss Reg CC holds for repeated overdrafts. The question I received was, “We have a customer who was overdrawn last week and is now bringing in a $3,000 check. We feel this customer is a risk and would like to place a special exception seven-day hold on his deposit. Can we do this?”
Our answer, of course, comes from Regulation CC part 229.13. Now, in this part of Regulation CC, there are a few options that we can consider because the question wasn't clear enough as to what applies. So first of all, it's important to acknowledge that you can always refuse a deposit. You don't have to accept a deposit into a checking account, or you could require them to place the deposit into a savings account, which generally savings accounts are not subject to Regulation CC, unless you have disclosed you're going to treat savings accounts the same as checking accounts. But under Regulation CC, savings accounts are not covered. Again, if you've contractually told them something, you have to follow that, but that's a whole different conversation.
So first of all, you could refuse it or put it into a savings account and not take that deposit. Our second option is to place a case-by-case. Hold on there. Now you're probably aware of a case-by-case hold, you can delay funds up to second day availability on certain types of checks, but you're probably aware of that because you asked specifically if you could place a seven-day special exception hold. And the question becomes “what type of special exception hold?”
Well, if this is a new account, then you could place a new account special exception hold, which could actually go up to ninth day availability depending on what you disclosed in your disclosure. And also maybe you were thinking this could be a large deposit, but I'm assuming that you asked this question related to overdraft because the check is $3,000. So if the check's $3000, that's less than what we're gonna be able to do for a large deposit.
So that really leads us to the topic of this compliance clip, which is repeated overdrafts. That's our next option, that is we might be able to place a hold on this check due to repeated overdrafts. One overdraft last week really isn't gonna cut it because under the rule, under 229.13(c), the rule provides two tests to determine if we have a repeated overdrawn customer. And these tests include two different things.
The first thing is that within six or more banking days, within the preceding six months, the account is negative or would've been negative if checks were not returned. So in six or more banking days, in the last six months, the account was negative or would have been negative. If it was just one day last week, that's not gonna be enough to consider it a repeated overdraft.
Now the second part of this test is two or more banking days in the proceeding, six months where the account was or would have become negative if you hadn't returned checks in an amount of $5,000 or more. Basically, if they're a large offender rather than a quantity offender. So if they're a large offender and they have a overdraft where the count is negative over $5,000 just twice in the preceding six months, this can also qualify as repeated overdrafts. Now I think it's important to point out that this $5,000 mark that's in effect at the time of this recording is going to change. It's actually going to change for inflation on July 1, 2020, and that amount is going to $5,525. So what you need to do is make sure that that amount, the $5,525 is adjusted before July 1 because you need to notify your customers and be ready to go by July 1.
And so if you meet one of these two qualifications, then you could place a special exception hold for repeated overdrawn for a repeated overdrawn account.
I hope that helps. That's all I have for you today in this Compliance Clip.