Regulation CC: My fair warning (6/23/06)

As you can imagine, all banks must adhere to a number of regulations everyday. Most of these regulations are there to protect consumers and the bank. I had a recent situation with a client who got entangled with Regulation CC so I thought I'd enlighted you.

What is Regulation CC?
Regulation CC deals with the availablility of deposited funds. 99% of the time, your deposit is made available immediately. However, in some instances, the bank can place a seven day hold on any deposit for the following reasons:

1. Deposit to a new account and you're a new customer.
2. Deposit of a previously returned item (bad check).
3. Unusually large deposit.
4. If the deposit is being made to an account with repeated overdrafts.

Most of you will experience this regulation at some point in your financial lives, if you haven't already. If a seven day hold is placed on your deposit, you won't have access to those funds. They sit in your account and can't be touched. This regulation was put in place as a measure to protect banks from fraudulant deposits. If the bank, at any time, is unsure or suspicious of a check you deposit, this seven day hold ensures the bank of collecting funds prior to any withdrawals from the depositor's account.

The reasons for a hold listed above are simply guildlines. Each bank uses their own descretion when making a decision to place a hold. For example, the phrase "unusually large deposit" is a relative term. If the average balance in your checking account is $100 and you make a $20,000 deposit, this would be considered by most people's judgement to be an unusually large deposit. Therefore, a hold may be placed. The regulation requires that you be notified within 24 hours if a hold has been placed on your deposit. If you're making your deposit at a teller line (vs. an ATM), you'll more than likely be informed of the hold at that time.

The reason this is important to know is that Regulation CC can create a real mess. I'll give you an example. Suppose you sold your house and had a large check from the title company for sale proceeds. Prior to depositing that check, you decided to write a bunch of checks for bills and drop them in the mail. Upon making your deposit, it was determined by the bank that this was an unusually large deposit and a hold was placed on your funds. Meanwhile, your checks are beginning to clear your account, but are bouncing because the funds aren't available. Now you've got a mess which will take a long time to clean up.

There are a few ways to avoid a Regulation CC.
1. If you're opening a new account at a new bank, use cash. Banks can't place holds on cash.
2. Keep your account in good standing. Avoid overdrafts and don't deposit bad checks and the bank will be less likely to place a hold a particular deposit.
3. If you plan on making a large deposit, try to obtain those funds in the form of a cashier's check or sometimes referred to as an official check. Cashier's checks are almost as good as cash.

If you ever find yourself with a Regulation CC hold and it is unavoidable, just be aware of which funds are available and which funds aren't so you don't complicate the situation with bounced checks.