Check Holds

Everyone knows that checks can be held for some amount of time, but I often get questions as to what the exact rules are.  Various disclosures of the CU’s availability of funds rules can be found in the lobby, in notices on preprinted deposit slips, and perhaps in the member agreement as well.

I’d like to go through the rules here on the blog for a quick and easy reference.  I will list the various types of instruments under their particular availability requirements and then I will describe the exceptions.

Next day availability:
· Cash deposits made in person to an employee of the depository CU.
· Electronic payments received.
· Treasury checks deposited in an account held by a payee.
· Postal money orders deposited in an account held by the payee of the money order and in person to an employee of the depository CU. 
· A Federal Reserve Bank or Federal Home Loan Bank check deposited in an account held by the payee and in person to an employee of the depository bank.
· A check drawn by a state or a unit of general local government and deposited in an account held by a payee of the check, in a depository bank located in the state that issued the check, or the same state as the unit of local government that issued the check, in person to an employee of the depository CU, and with a special deposit slip or deposit envelope, if such envelope is required by the depository CU.  (If you’re going to require it, you have to provide it).
· A cashier’s, certified or teller’s check deposited in an account held by a payee of the check, in person to an employee of the depository CU and with a special deposit slip or deposit envelope, if such slip or envelope is required by the depository CU.
· A check deposited in a branch of the depository CU and drawn on the same or another branch of the same CU if both branches are located in the same state or in the same check processing region and the lesser of $100 or the aggregate amount deposited on any one banking day to all accounts of the customer by check or checks not subject to next-day availability under the law.  This is what we mean by up to $100 next day availability.

Second business day following the banking day on which funds are deposited:
· Cash deposits not made in person to an employee of the depository CU.
· Checks not deposited in person that would otherwise receive next day availability as described above.
· Local checks.
· Treasury checks not meeting the above next day availability requirements.
· Postal money orders not meeting the above next day availability requirements.
· For FRB or FHLB checks, state or unit of general local government checks, cashier’s, certified or teller’s checks, if any of these is a local check that does not meet the above next day availability requirements.

Third business day following the banking day on which funds are deposited:
· Funds deposited in an account by a non-local check in Utica (Federal Reserve Office 0210, 0280) and Kansas City (Federal Reserve Office 0865, 2865).

Fifth business day following the banking day on which funds are deposited:
· Non-local checks.
· FRB or FHLB checks, state or unit of general local government checks, cashier’s, certified or teller’s checks or checks deposited in a branch of the depository bank and drawn on the same or another branch of the same bank that are non-local and do not meet the above next day availability requirements.
· Deposits at nonproprietary ATMs.

One business day extensions:
· You can delay what is available for withdrawal by cash or similar means (including electronic payment, issuance of a cashier’s, certified or teller’s check or other irrevocable commitment to pay) by one business day, but $400 of that money must be available for withdrawal by cash or similar means not later than 5:00 pm on the business day on which the funds would otherwise be available and this is in addition to the $100 next business day availability.
· Deposits in Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands if deposited in an account branch of a depository CU located in these places and deposited by a check drawn on or payable through a paying bank/CU not located in the same state as the depository CU.

Exceptions:
· New Accounts.  There is a lot of confusion concerning what this really means.  You don’t get any additional time for cash and electronic payments.  FRB or FHLB checks, Postal money orders, traveler’s checks, state or unit of general local government checks, cashier’s, certified or teller’s checks still follow the above rules for the first $5,000 and any amount in excess of that must be available not later than the 9th business day following the banking day on which funds are deposited.  Everything else may be held.  If a member has no accounts at the CU for at least 30 calendar days and creates an account, that account is new for 30 calendar days.
· Large Deposits.  For local and non-local checks (but not cash and electronic payments) you may extend the hold placed on a day’s deposits of checks over $5,000.  You get to pick the part of the deposit to which you apply this.  The commentary provides a good example:

If a customer deposits $2,000 in cash and a $9,000 local check on a Monday, $2,100 (the proceeds of the cash deposit and $100 from the local check deposit) must be made available for withdrawal on Tuesday.  An additional $4,900 of the proceeds of the local check must be made available for withdrawal on Wednesday in accordance with the local schedule, and the remaining $4,000 may be held for an additional period of time under the large deposit exception.


· Redeposited Checks.  There are exceptions to this exception.  This exception does not apply if the check is returned due to a missing indorsement and redeposited with the indorsement now supplied or if a check is returned because it is post-dated and it’s no longer post-dated when it’s redeposited.
· Repeated Overdrafts.  The hold rules on local and non-local checks don’t apply if any of the member’s accounts are repeatedly overdrawn.  An account is overdrawn if on 6 or more banking days within the preceding 6 months the account balance is negative or would have become negative if checks or other charges to the account had been paid or on 2 or more banking days within the preceding 6 months, the account balance is negative, or the account balance would have been negative in the amount of $5,000.00 or more if checks or other charges to the account had been paid.
· Reasonable cause to doubt collectibility.  This is perhaps the trickiest of the exceptions.  Under the statute, you can hold local and non-local checks beyond the normal hold periods if you have “a reasonable cause to believe that the check is uncollectible from the paying bank.”  This “requires the existence of facts that would cause a well-grounded belief in the mind of a reasonable person.”  The problem is you had better be right.  You can’t just base it on the class of the check or class of person depositing the check and you have to tell the person why you doubt the instrument is collectible.
· Emergency conditions.  Local and non-local checks can be held for a reasonable time in the event of communication, computer or equipment interruption; another financial institution’s suspension of payments; war; or an emergency condition beyond the control of the depository credit union.

Understand that when you exercise these exceptions, a notice needs to be sent that complies with the terms of 12 CFR 229.13.  Otherwise, that’s check holds in the briefest  terms I can muster.

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