This post was updated to add new information about upcoming changes to the minimum amounts financial institutions must make available from deposits.
Reg CC: Funds availability requirements and fraud
February 29, 2024
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How to comply with both Reg CC and fraud requirements
Read about the rules outlined by Reg CC, the circumstances that allow exceptions, and what to do when your financial institution suspects fraud.
Are your AML and fraud teams short-handed? Learn how one financial institution bridged the gap.
Takeaway 1
Reg CC requirements can feel at odds with anti-fraud efforts, especially when check fraud is such a problem. But AML and fraud staff can comply and still fight fraud.
Takeaway 2
Reg CC requires many deposits to be available for withdrawal 1-2 business days after deposit. Exceptions to this requirement can help with check fraud detection efforts.
Takeaway 3
Financial institutions could face larger exposure to fraud losses beginning in 2025 as the minimum-availability amounts and exception thresholds increase.
Reg CC & fraud
Balance fraud-fighting with consumer compliance
As check fraud and other forms of fraud continue to soar, financial institutions increasingly are called to know when they can hold deposited funds longer than permitted by the Expedited Funds Availability Act, commonly known as Regulation CC, or Reg CC.
Financial institutions’ AML and anti-fraud programs incorporate tremendous resources to prevent fraud and their associated losses. However, banks and credit unions must balance their fraud-fighting obligations with consumer compliance requirements on deposit-availability timeframes and notices under Reg CC.
Efficient compliance with both Reg CC and the requirements tied to anti-fraud or anti-money laundering can also greatly impact customer or member experiences. Legitimate customers and members expect access to their deposits quickly. They equally assume their banks and credit unions will protect them against fraud. As some financial institutions have learned, it can be tricky to balance improving customer experience and fraud, but the stakes are high.
This article explains Reg CC and its general rules for making funds available from checks after a deposit. It covers when a financial institution is allowed to hold a member or customer’s deposit for longer than the one to two days typically allowed under Reg CC. Finally, it examines what the funds availability regulation says about holding funds when fraud is suspected.
See the regulation and discuss this topic with your institution’s attorney to evaluate your bank or credit union’s specific requirements.
Abrigo is partnering with Mitek to leverage advanced fraud solutions to prevent financial crimes like check fraud.
READ MOREExpedited funds availability
What is Reg CC in banking?
Reg CC is the federal requirement for banks and credit unions to make funds deposited to a transaction account available for withdrawal within specific timeframes. The regulation is rooted in the 1987 Expedited Funds Availability Act, aimed at addressing concerns that financial institutions were placing lengthy holds on checks deposited by customers or members. The consumer compliance regulation has been revised several times over the years.
Types of accounts covered by Reg CC include demand deposit accounts or similar transaction accounts at a depository institution that can make third-party payments. Accounts that are not covered by Reg CC include savings accounts or time deposit accounts, such as money market deposit accounts, even though they may have limited third-party payment powers.
Does Regulation CC apply to business accounts?
The regulation doesn't specifically call out business or non-consumer accounts. However, it defines the types of accounts subject to Reg CC as
accounts at a bank from which the account holder is permitted to make transfers or withdrawals by negotiable or transferable instrument, payment order of withdrawal, telephone transfer, electronic payment, or other similar means for the purpose of making payments or transfers to third persons or others. Account also includes accounts at a bank from which the account holder may make third party payments at an ATM, remote service unit, or other electronic device, including by debit card."
Later, the regulation says its definition of account excludes accounts where the account holder is:
- A bank
- An office of an institution as described in Reg CC or an office of a foreign bank as defined in the International Banking Act that is located outside the U.S.
- The Treasury of the United States (for either direct or indirect account holders)
Both the American Bankers Association (ABA) and the National Association of Federal Credit Unions (NCUA) have interpreted the regulation to include business accounts.
When do credit unions and banks have to make deposited funds available for withdrawals?
In all cases, the clock to make funds available starts ticking on the banking day of a deposit, which is defined as the part of any business day that an office of an institution is open to the public for carrying on substantially all of its banking functions. Deadlines are listed below and vary based on the type of deposit or payment instrument. In addition, exceptions to the deadlines can provide additional time to scrutinize the transaction, which can be particularly useful if check fraud is suspected. Read more about exceptions later in this post.
Which deposits need fast access?
Reg CC deadlines for “next-day availability”
Many deposits, especially if made in person at the account holder’s institution or branch, must be available for withdrawal on the first business day following the deposit. The following types of deposits are among those generally required to have “next-day availability:”
- Cash
- Electronic payments such as wire transfers and ACH credit transactions, so long as the receiving institution has received both the payment “in actually and collected funds” and instructions on both the account and amount to be credited
- U.S. Treasury checks deposited in an account held by the check payee
- U.S. Postal Service money orders, Federal Reserve Bank checks, and Federal Home Loan Bank checks that are deposited into the payee’s account and in person via an employee of the institution
- Cashier’s or certified checks deposited in person to the payee’s account via an employee of that depositary bank or credit union
- Checks that are drawn on an account at the institution and that are deposited in person with an institution employee
- State and local government checks deposited by the payee into their account, as long as the state or local government is in the same state as the bank or credit union and it’s done in person with a credit union or bank employee
- Cashier’s checks, certified checks, or teller’s checks deposited to the payee’s account in person with a bank or credit union employee
Deposits that require second-day availability
Other types of deposits must be made available for withdrawal no later than the second business day. Those include checks not deposited in person but otherwise meeting the requirements listed above for:
- Postal Service money orders
- Fed or FHLB checks
- State and local government checks
- Cashier’s, certified, or teller’s checks
Even if certain check deposits are not subject to next-day availability, financial institutions generally must still make available at least the first $225 of the deposits on the next business day. This is known as the Reg CC $225 rule.
In-the-know clientele
Reg CC's required disclosures
Reg CC also requires banks and credit unions to inform customers or members of the institution’s policy on funds availability “clearly and conspicuously in writing.”
This is often in the form of posted notices where bank or credit union employees accept deposits, posted notices at ATMs, and preprinted notices on deposit slips that are provided by the institution and have the customer's name and account number preprinted on them. The policy might also be highlighted in a document describing the terms of an account. In any case, the notice should reflect the availability policy the bank or credit union follows in most cases.
Exceptions to the rule
Check hold exceptions allowed by Reg CC
Because Regulation CC aims to implement Congress’s goal of providing customers or members access to their deposited funds as quickly as possible, exceptions to the required availability schedules are limited. That makes it important for staff to understand the Reg CC exceptions in all their check fraud detection efforts.
The six so-called safeguard exceptions to the availability schedule under Reg CC are related to:
- New accounts, which are those newer than 30 calendar days. This exception allows holds on check deposits but does not cover deposits made by cash and electronic payments. In addition, suppose each customer on an account has had another account at the bank or credit union for 30 days before an additional account is opened. In that case, it is not considered a new account.
- Large deposits of one or more checks. A financial institution can extend the hold placed on deposits of one or more checks to the extent that the aggregate amount exceeds $5,525 on any single banking day, regardless of how many accounts list the customer or member. Nevertheless, financial institutions must make some of the funds available quickly, as outlined in Reg CC. In addition, this exception does not apply to large cash deposits or those made by electronic payments.
- Redeposited checks, which are those that have been returned unpaid and redeposited by the customer or the financial institution. However, this exception doesn’t apply to checks redeposited after a missing endorsement is obtained or if a check that had been post-dated is no longer post-dated.
- Repeated overdrafts, including accounts or combined accounts with negative balances on at least six days in the last six months. This exception also includes accounts with a negative balance of $5,525 or more on at least two banking days in the last six months.
- Reasonable cause to doubt the collectibility of a check or other deposit, which requires “the existence of facts that would cause a well-grounded belief in the mind of a reasonable person” that the check is uncollectible.
- Emergency conditions, such as natural disasters, communication interruptions, or another situation that prevents the bank or credit union from processing checks normally.
The length of restrictions to deposited funds, including check holds, can vary under Reg CC. In addition, in all cases above except for the one regarding new accounts, financial institutions postponing access to funds from checks or other deposits must quickly provide the depositor with written notice of the delay.
2025 adjustments
Funds availability minimum is increasing
One new wrinkle for financial institutions fighting check fraud is that adjustments to Reg CC in 2025 will increase the potential exposure of financial institutions to check-fraud losses, as they will have to make more funds available to customers before they can verify the legitimacy of the checks.
A 2019 amendment to Reg CC required the periodic increases to the funds availability minimum based on inflation. The Consumer Financial Protection Bureau has previously said regulators anticipate publishing the adjustments in the first half of 2024 to become effective July 1, 2025. The CFPB declined to comment to Abrigo on the expected increases.
However, the adjustments will be based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) over the last five years. Given inflation trends, the adjustments could be significant. That means that if fraud isn’t caught, financial institutions could be on the hook for even larger losses related to a transaction than they are now. Using fraud management software that can identify fraudulent checks in real time will be more important than ever once the increases take effect.
Under Reg CC, adjustments will be calculated by multiplying the existing amount by the aggregate percentage change in the CPI-W between July 2018 and July 2023, then rounding to the nearest $25. Based on the methodology outlined, the dollar amounts for 2025 would increase as follows:
- The minimum amount that must be made available by the next business day from most check deposits would increase from $225 to $275.
- Thresholds for using exceptions to hold funds related to large deposits and repeatedly overdrawn accounts would jump from $5,525 to $6,725.
- The threshold for using a new account exception hold and the related amount still subject to next-day availability requirements would increase from $5,525 to $6,725
- Maximum civil liability amounts for failing to comply with Reg CC would increase from $1,100 to $1,350 for an individual action and from $552,500 to $672,950 for a class action.
In addition, financial institutions will be required to send a written notice to customers or members regarding changes to their funds-availability policies as a result of the 2025 increases.
Combatting illicit activity
How to comply with Reg CC and fight fraud
So, what can financial institutions do to fight fraud while complying with Reg CC?
Nothing in Reg CC affects a financial institution’s right to accept or reject a check for deposit, regulators have noted. Strong know your customer (KYC) training and ongoing customer due diligence (CDD) compliance are essential for this approach. Ensure bank or credit union staff, from the teller line to the fraud staff, are familiar with check-kiting red flags and other check fraud detection tips.
Reg CC also doesn’t affect the right to revoke settlement, charge back accounts for returned or unpaid checks, or charge back electronic payments if the institution doesn’t receive “actually and finally collected funds.”
Suppose circumstances surrounding suspected check fraud or other types of fraud don’t “fit” the exceptions tied to new accounts, large deposits, or redeposited checks. In that case, financial crime professionals can also consider using the exception for “reasonable cause to doubt collectability” to extend the hold time. Indeed, commentary following Reg CC gives additional detail on this exception, including providing examples of when checks can be held, including being held for suspected check fraud.
“This exception applies to local and nonlocal checks, as well as to checks that would otherwise be made available on the next (or second) business day,” according to regulators' commentary. “When a bank places or extends a hold under this exception it need not make the first [$225] of a deposit available for withdrawal on the next business day.”
Examples of Reg CC's 'reasonable cause to doubt'
Financial institutions can rely on “a combination of factors that give rise to a reasonable cause to doubt” that the check will be paid, the commentary continues. Among examples, some of which could tie to fraud scenarios, for which institutions can invoke the “reasonable cause” exception allowed under Reg CC:
- The bank or credit union receives a notice from the paying institution that a check was not paid and is being returned.
- The paying bank provides information before the check is deposited that gives the depositing institution reason to believe the check is uncollectible. This includes a stop payment notice.
- A check is deposited more than six months after the date on the check.
- The financial institution has confidential information that leads it to believe the check will not be paid. “For example, a bank could conclude that a check being deposited is uncollectible based on its reasonable belief that the depositor is engaging in kiting activity,” Reg CC commentary says. “Reasonable belief as to the insolvency or pending insolvency of the drawer of the check or the drawee bank and that the checks will not be paid also may justify invoking this exception.”
One important directive related to the “reasonable cause” exception is that a determination of uncollectibility cannot be based on “a class of checks or persons.” For example, it can’t be based on the depositor’s race or national origin. Another example: A depositary bank can’t invoke the exception because the check is drawn on a rural bank, even if it means it won’t have the chance to learn of nonpayment before the deadline to make the funds available.
For most banks and credit unions, real-time fraud detection software is one of the most effective ways to comply with Reg CC while thwarting losses and protecting customers or members. Automated workflows combined with an AI/ML-driven solution will minimize the processing burdens while lowering costs and preventing fraud’s impacts.
Financial institutions have tremendous responsibilities when it comes to preventing and detecting fraud. Knowing Reg CC’s requirements for funds availability and when exceptions can be made is essential for financial institutions to balance regulatory compliance for AML and consumer interests.
In a pilot program, Abrigo Fraud Detection correctly identified 93% of a Southeastern U.S. bank’s total fraudulent check value, equating to more than $330,000 in potential fraud loss avoidance.
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