Another in a series of crucial changes authorized by the Dodd-Frank Act became effective July 21, 2011, this one requiring financial services organizations (FSOs) to begin making $200 available for withdrawal on the business day following the banking day of deposit.
More changes are coming. Many more. Last March, the Federal Reserve issued a lengthy list of proposed changes to Federal Reserve Regulation CC (Reg CC), although those stipulations are independent of the Dodd-Frank provisions.
The proposed changes to Reg CC will impact the entire financial services industry, but one specific set of changes – those expediting the availability of funds and the collection of checks – has triggered concern for many because expedited-funds availability could increase risks and ultimately check-related losses.
At the heart of the matter are the following proposed changes in the Reg CC rules:
Earlier this year, the Fed began taking public comments at their website on the proposed changes. Much of the feedback from financial service’s risk and fraud management officers reflect a belief that the expanded regulations could leave their institutions vulnerable.
One compliance executive from a credit union commented, “There appears to be many provisions of the proposed rules that will place a great deal of regulatory burden on financial institutions. This is especially true of smaller institutions that may not have the technological resources to implement an electronic method to collect and return rechecks … This of course will expose an institution to greater risk of loss.”
Another credit union risk manager responded, “The proposed changes to Reg CC place unnecessary burdens on financial institutions. Check holds are intended to give sufficient time for a dishonored check to be returned to the depositing institution. The reality is that checks frequently are not returned within a two day period.”
With the public comment period closed, regulators are now assessing the feedback to determine the next steps.
As the comments above suggest, increased exposure to loss is on the minds of many credit union executives. CUNA Mutual encourages credit union policyholders to ease their concerns by continuing with a strong line of defense consisting of:
Right now, Reg CC allows for six types of exception holds:
Reasonable cause to doubt collectability may be the most used of the six exceptions. If an exception hold is placed due to “reasonable cause,” the depositor must be notified of the hold at the time of deposit (unless the deposit is not made in person, e.g., ATM deposit). However, if the circumstances leading to the exception hold only become known to the depositary bank after the deposit is received, then notice can be mailed to the depositor – as long as the notification is mailed by midnight of the next business day.
"The earlier the check is presented for payment, the sooner the credit union will know if it's being returned," says Barb Stanek, CUDE, vice president of the Missouri Credit Union Association's (MCUA's) iVia Exchange Services. "It's one of the reasons we developed our Remote Deposit Capture product. Using Remote Deposit Capture accelerates the collection of the deposit item by at least one day."
Using iVia Exchange's PDF Return Service will help credit unions save up to three days in the return notification process. Nearly 75% of iVia's customers take advantage of PDF Return Service which offers earlier receipt of return items, allows earlier notification to customers of return items and eliminates transportation costs. iVia provides secure access to view image returns by 4 p.m. daily (iVia’s website) – earlier than without the service, allowing you to view the image of these return items the same day your account at Missouri Corporate Credit Union is charged.
If you are concerned about protecting itself from loss, consider using Early Warning’s DEPOSIT CHEK® service, which can help improve the accuracy of hold decisions. Hundreds of financial service organizations across the country, including many credit unions, rely on DEPOSIT CHEK service each day to aid them to make faster, more reliable evaluations about deposits.
DEPOSIT CHEK service can help accurately validate transactions – including account status, account score and item-level particulars such as stop payments, recent returns and velocity warnings. If an inquiry triggers a negative response, the financial institution can determine “next steps” based on its risk tolerance. The institution may place a hold on the item in question, citing the negative response as grounds for “reasonable cause” as outlined in Reg CC.
CUNA Mutual has been working with Early Warning for eight years to help credit unions better manage their risk and reduce check-related losses. For more information on Early Warning Deposit Chek, click here.