The Expedited Funds Availability Act (EFA) was enacted in August 1987 and became effective in September 1988. The Check Clearing for the 21st Century Act (Check 21) was enacted October 28, 2003, with an effective date of October 28, 2004. Regulation CC (12 CFR Part 229) issued by the Board of Governors of the Federal Reserve System implements EFA in Subparts A through C and Check 21 in Subpart D. Regulation CC sets forth the requirements that depository institutions make funds deposited into transaction accounts available according to specified time schedules and that they disclose their funds availability policies to their customers. The regulation also establishes rules designed to speed the collection and return of unpaid checks. The Check 21 section of the regulation describes requirements that affect banks that create or receive substitute checks, including consumer disclosures and expedited recredit procedures.

Regulation CC contains four subparts:

The Appendices to the regulation provide additional information:

"Account" For purposes of subparts B and C is a "deposit" as defined in 12 CFR 204.2(a)(1)(i) that is a "transaction account" as defined in 12 CFR 204.2(e) (12 CFR 204 is the Federal Reserve Board’s Regulation D). It encompasses consumer and corporate accounts and includes accounts from which the account holder is permitted to make transfers or withdrawals by:

However, for the purpose of subpart B, "account" does not include accounts where the account holder is a bank or a foreign bank, or where the account holder is the Treasury of the United States.

For the purpose of subpart D, "account" means any deposit at a bank, including a demand deposit or other transaction account and a savings deposit or other time deposit. Many deposits that are not accounts for purposes of the other subparts of Regulation CC, such as savings deposits, are accounts for purposes of subpart D.

"Bank" All banks, mutual savings banks, savings banks and savings associations that are insured by the FDIC, and federally-insured credit unions. "Bank" also refers to nonfederally insured banks, credit unions and thrifts, as well as agencies and branches of foreign banks and Federal Home Loan Bank (FHLB) members. For purposes of subparts C and D, "bank" also includes any person engaged in the business of banking, Federal Reserve Banks, FHLBs, and state/local governments to the extent that the government unit pays checks. For purposes of subpart D only, "bank" also refers to the U.S. Treasury and the United States Postal Service (USPS) to the extent that they act as payors.

"Business Day" and "Banking Day" are defined as follows –

Even though a bank may be open for regular business on a Saturday or Sunday, it is not a banking day for the purpose of Regulation CC because Saturday and Sunday are never a ‘business day’ under the regulation. The fact that one branch is open to the public for substantially all of its banking activities does not necessarily mean that day is a banking day for other branches.

"Check" Includes both original checks and substitute checks. ²

"Consumer" A natural person who draws a check on a consumer account or cashes or deposits a returned check against a consumer account.

"Consumer Account" An account used primarily for personal, family, or household purposes.

"Customer" A person who has an account with a bank.

"Local Check" A check deposited in a location of the depository bank that is located in the same Federal Reserve check processing region as the paying bank.

"Non-Local Check" is a check deposited in a different check processing region than the paying bank.

"Truncate" To remove an original check from the forward collection or return process and replace it with a substitute check or, by agreement, information relating to the original check. The truncating bank may or may not choose to provide subsequent delivery of the original check.

The regulation is to be enforced for banks through Section 8 of the Federal Deposit Insurance Act (12 USC 1818) and for credit unions through the Federal Credit Union Act (12 USC 1751 et seq.). In addition, a supervisory agency may enforce compliance though any other authority conferred on it by law. The Federal Reserve Board shall enforce the requirements of the regulation for depository institutions that are not specifically committed to some other government agency.

Cash, electronic payments, and certain check deposits must generally be made available for withdrawal the business day after the banking day on which they were received. Among the covered check deposits are cashier’s, certified, and teller’s checks, government checks (including U.S. Treasury checks, U.S. Postal money orders, state and local government checks, checks drawn on Federal Reserve or Federal Home Loan Banks), and certain "on us" checks (checks drawn on the same bank or a branch thereof).

Generally, to qualify for next-day availability, the deposit must be:

However, two types of deposits, U.S. Treasury checks and "on us" checks, must receive next-day availability even if the deposit is not made at a staffed teller station. Other next-day check deposits, and cash deposits, that are not made at staffed teller stations must be available for withdrawal on the second business day after the day of deposit under §229.10(a)(2) and §229.10(c)(2).

Under §229.10(c)(1)(iv-v), for state and local government checks to receive next-day availability, the depository bank must be located in the same state as the governmental unit issuing the check. Further, under §229.10(c)(3), the depository bank may require special deposit slips or envelopes for these deposits, as well as for cashier’s, certified and teller’s check deposits. If the depository bank requires the use of special deposit slips, it must either provide the slips or inform customers how they may be obtained.

For "on us" checks to receive next-day availability, the checks must be drawn on the same or another branch of the bank where the check is deposited. In addition, both branches must be located in the same state or check processing region.

Section 229.10(c)(1)(vii) of the regulation contains a special $100 rule for check deposits not subject to next-day availability. Under the rule, the depository bank must make available for withdrawal the lesser of $100 or the aggregate amount deposited to all accounts, including individual and joint accounts, held by the same customer on any one banking day. The $100 rule does not apply to deposits received at nonproprietary Automated Teller Machines (ATMs).

The permanent availability schedule became effective on September 1, 1990. (See Permanent Funds Availability Schedule-Figures A & B on the following pages.) Under this schedule, local check deposits must be made available no later than the second business day following the banking day of deposit. Deposits of nonlocal checks must be made available no later than the fifth business day following the banking day of deposit. Funds, including cash and all checks, deposited at nonproprietary ATMs must be made available no later than the fifth business day following the banking day on which the funds were deposited.

Checks that would normally receive next-day availability are treated as local or non-local check deposits if they do not meet all the criteria for next-day availability under §229.10(c). (As mentioned earlier, certain checks generally deposited at a staffed teller station and into an account held by the payee of the check receive next-day availability. However, state, local government and certain "on us" checks are subject to additional rules.)

U.S. Treasury checks and U.S. Postal Money orders that do not meet all the requirements for next-day or second day availability as outlined in §229.10(c) receive funds availability as if they were "local" checks. Cashiers, certified, teller’s, state and local government, and checks drawn on the Federal Reserve or Federal Home Loan Banks that do not meet all the requirements in §229.10(c) receive funds availability as either local or non-local checks, according to the location of the bank on which they are drawn.

Special rules apply to cash withdrawals from local and non-local check deposits. While §229.12 (d) allows the depository bank to extend the availability schedule for cash or similar withdrawals by one day, the customer must still be allowed to withdraw the first $100 of any check deposit not subject to next-day availability on the business day following the day of deposit. In addition to the first $100, a customer must also be allowed to withdraw $400 of the deposited funds (or the maximum amount that can be withdrawn from an ATM, but not more than $400) no later than 5 p.m. on the day funds become available for check withdrawals. The remainder of deposited funds would be available for cash withdrawal on the following business day.

Section 229.12(e) provides that banks in Alaska, Hawaii, Puerto Rico, or the Virgin Islands receiving checks drawn on or payable through banks located in another state may extend the availability schedules for local and non-local checks by one day. This exception, however, does not apply to checks drawn on banks in these states or territories and deposited in banks located in the continental U.S.

The regulation provides six exceptions that allow banks to exceed the maximum hold periods in the availability schedules. The regulation regards the exceptions as "safeguards" to the maximum availability time frames because they are intended to offer the institution a means of reducing risk based on the size of the deposit, past performance of the depositor, lack of depositor performance history, or belief that the deposit may not be collectible. These exceptions include:

While banks may exceed the time frames for availability in these cases, the exceptions may generally not be invoked if the deposit would ordinarily receive next-day availability.

An account is considered a "new account" under §229.13(a) for the first 30 days after it is established. An account is not considered "new" if each customer on the account had another established account at the bank for at least 30 calendar days. The new account exception applies only during the 30-day period, beginning on the date the account is established, and does not cover all deposits made to the account.

Although the regulation exempts new accounts from the availability schedules for local and non-local checks, next-day availability is required for deposits of cash and for electronic payments. Additionally, the first $5,000 of a day’s aggregate deposits of government checks (including federal, state, and local governments), cashier’s, certified, teller’s, depository or traveler’s checks must be given next-day availability. The amount in excess of $5,000 must be made available no later than the ninth business day following the day of deposit.

To qualify for next-day availability, deposits into a new account must generally be made in person to an employee of the depository bank. If the deposits are not made in person to an employee of the depository bank, such as an ATM deposit, availability may be provided on the second business day after the day of deposit. U.S. Treasury check deposits, however, must be given next-day availability regardless of whether they are made at staffed teller stations or proprietary ATMs. Banks are not required to make the first $100 of a day’s deposits of local and non-local checks or funds from "on us" checks available on the next business day.

Under §229.13(b), the large deposit exception, a depository bank may extend hold schedules when deposits other than cash or electronic payments exceed $5,000 on any one day. A hold may be applied to the amount in excess of $5,000. To apply the rule, the depository bank may aggregate deposits made to multiple accounts held by the same customer, even if the customer is not the sole owner of the accounts.

Under §229.13(c), the depository bank may delay the availability of funds from a check if the check had previously been deposited and returned unpaid. This exception does not apply to checks that were previously returned unpaid because of a missing indorsement or because the check was postdated when presented.

Section 229.13(d) provides that if a customer’s account, or accounts, have been repeatedly overdrawn during the preceding six months, the bank may delay the availability of funds from checks. A customer’s account may be considered "repeatedly overdrawn" in two ways. First, the exception may be applied if the account (or accounts) have been overdrawn, or would have been overdrawn had checks or other charges been paid, for six or more banking days during the preceding six months.

Second, the exception may be applied to customers who incur overdrafts on two banking days within the preceding six month period if the negative balance in the account(s) is equal to or greater than $5,000. This exception may also apply if the account would have been overdrawn by $5,000 or more had checks or other charges been paid.

This exception, in §229.13(e), may be applied to all checks. To trigger this exception, the depository institution must have "reasonable cause" to believe that the check is not collectible and must disclose the basis for the extended hold to the customer. For example, reasonable cause may include communication with the paying bank indicating that:

The "reasonable cause" exception may also be invoked in cases where:

The "reasonable cause" exception may not be invoked because of:

Whenever this exception is used, the bank must notify the customer, in writing, at the time of deposit. If the deposit is not made in person or the decision to place the hold is based on facts that become known to the bank at a later date, the bank must mail the notice by the first business day after the day the deposit is made or the facts become known. The notice must indicate that availability is being delayed and must include the reason that the bank believes the funds are uncollectable. If a hold is placed on the basis of confidential information, as when check kiting is suspected, the depository bank need only disclose to the customer that the hold is based on confidential information that the check may not be paid.

If the bank asserts that the hold was placed due to confidential information, the bank must note the reason on the notice it retains as a record of compliance. The depository bank must maintain a record of each exception notice for a period of two years. This record should contain a brief description of the facts or any documents supporting the "reasonable cause" exception.

Under §229.13(e)(2), if a depository bank invokes the "reasonable cause" exception and does not inform the customer in writing at the time of the deposit, the bank may not charge the customer any overdraft or returned check fees resulting from the hold if:

However, the depository bank may assess overdraft or returned check fees if, on the exception hold notice, it states that the customer may be entitled to a refund of any overdraft or return check fees imposed and describes how the customer may obtain such a refund. It must then refund the fees upon request.

Section 229.13(f) of the regulation also permits institutions to suspend the availability schedules under emergency conditions. Emergency situations include:

Whenever a bank invokes one of the exceptions (excluding new accounts) to the availability schedules, it must notify the customer in writing in accordance with §229.13(g). Banks may send notices that comply solely with §229.13(g)(1), or may comply with two alternative notice requirements discussed below.

Banks complying with §229.13(g)(1) must send notices which include:

If the deposit is made at a staffed facility, the written exception notice may be given to the person making the deposit regardless of whether the "depositor" is the customer who holds the account. If the deposit is not made at a staffed facility, the exception notice may be mailed to the customer no later than the business day following the banking day of deposit. If however, the depository bank discovers a reason to delay the funds, subsequent to the time the notice should have been given, the bank must notify the customer of the hold as soon as possible, but not later than the business day after the facts become known. In certain instances, exception holds based on "emergency" situations do not require notification to customers. For example, if deposited funds, subject to holds placed during an "emergency", become available for withdrawal before the notices are required to be sent, the depository bank is not required to send the notices to its customers.

If most check deposits to a nonconsumer account permit the bank to invoke either the large dollar or redeposited check exception, the bank may send a notice complying with §229.13(g)(1), or may send a one-time notice in accordance with §229.13(g)(2). The one-time notice must be sent when the first exception is invoked, or can be delivered before that time. The notice must state:

If most check deposits to an account permit the bank to invoke the repeated overdraft exception, the bank may send a notice complying with §229.13(g)(1), or may send a notice in accordance with §229.13(g)(3). The notice must be sent when the overdraft exception is first invoked. The notice must state:

For exceptions (other than new accounts), §229.13(h) allows the depository bank to delay availability for a "reasonable" time beyond the schedule. Generally, a "reasonable" period will be considered to be no more than one business day for "on-us" checks, five business days for local checks, and six business days for non-local checks. If a depository bank extends its availability beyond these time frames, it must be able to prove that such a delay is "reasonable".

A depository bank must begin accruing interest on interestbearing accounts no later than the business day on which it receives provisional credit for the deposited funds. A depository bank typically receives credit on checks within one or two days following deposit. A bank receives credit on a cash deposit, an electronic payment, and a check that is drawn on itself on the day the cash, check or electronic payment is received. If a nonproprietary ATM is involved, credit is usually received on the day the bank that operates the ATM credits the depository bank for the amount of deposit.

Section 229.14(a)(1) permits a bank to rely on the availability schedule from its Federal Reserve Bank, Federal Home Loan Bank, or correspondent bank to determine when the depository bank receives credit. If availability is delayed beyond what is specified in the schedule, a bank may charge back interest, erroneously paid or accrued, on the basis of that schedule.

Section 229.14(a)(2) permits a depository bank to accrue interest on checks deposited to all of its interest-bearing accounts based on an average of when the bank receives credit for all checks sent for payment or collection. For example, if a bank receives credit on 20 percent of the funds deposited by check as of the business day of deposit (e.g., "on us" checks), 70 percent as of the business day following deposit, and ten percent on the second business day following deposit, the bank can apply these percentages to determine the day interest must begin to accrue for check deposits on all interest-bearing accounts, regardless of when the bank received credit for funds deposited in any particular account. Consequently, a bank may begin accruing interest on a uniform basis for all interestbearing accounts, without having to track the type of check deposited to each account.

Nothing in §229.14(a) limits a depository bank policy that provides that interest can only accrue on balances that exceed a specified amount, or on the minimum balance maintained in the account during a given period. However, the balance must be determined according to the date the depository bank receives credit for the funds. This section also does not limit any policy providing that interest can accrue sooner than required by the regulation.

Money market deposit accounts, savings deposits, and time deposits, are not subject to the general rule concerning the timing of interest payment. However, for simplicity of operation, a bank may accrue interest on such deposits in the same manner that it accrues interest on transaction accounts.

Section 229.14(b) contains an exemption from the payment of interest requirements for credit unions that do not begin to accrue interest or dividends on their member accounts until a later date than the day the credit union receives credit for those deposits, including cash deposits. These credit unions are exempt from §229.14(a) as long as they provide notice of their interest accrual policies in accordance with §229.16(d).

Section 229.14(c) provides an exception to the general rule in §229.14(a) for checks that are returned unpaid. Essentially, interest need not be paid on funds deposited in an interestbearing account by a check that has been returned unpaid, regardless of the reason for return.

A bank must disclose its specific availability policy to its customers. The required disclosures must be clear and conspicuous, and must also be in writing under §229.15(a). Disclosures, other than those posted at locations where employees accept consumer deposits, at ATMs or on preprinted deposit slips, must be in a form that the customer may keep. These disclosures must not contain information unrelated to the requirements of the regulation. If other account terms are included in the same document, disclosures pertinent to this regulation should be highlighted such as, under a separate heading.

§229.15(b) requires banks to refer to the day funds will be available for withdrawal in a uniform manner in all of their disclosures. Disclosures must refer to when funds will be available for withdrawal as on "the______ business day after" the day of deposit. The first business day is the business day following the banking day the deposit was received, and the last business day is the day on which the funds are made available.

A bank does not need to give multiple disclosures to customers who have more than one account if the accounts are subject to the same availability policies. In addition, the bank does not have to give separate disclosures to joint account holders. A single disclosure to one of the holders of the joint account is permissible under §229.15(c).

Section 229.15(d) provides that the bank does not have to give disclosures to customers who have dormant or inactive accounts.

A bank must provide its customers with a disclosure that describes its funds availability policy. The disclosure must reflect the policy followed by the institution in most cases; however, the institution may impose longer delays on a caseby- case basis or by invoking one of the exceptions in §229.13, provided this is reflected in the disclosure.

The specific availability policy disclosure in §229.16(b) must include, as applicable, the following:

A bank that has a policy of making deposited funds available for withdrawal sooner than required, may extend the time when funds are available up to the time periods allowed under the regulation on a case-by-case basis. However, the bank must include the following in its specific policy disclosure under §229.16(c):

When a depository bank extends the time that funds will be available for withdrawal, on a case-by-case basis, it must provide the depositor with a written notice. The notice shall include the following information:

The notice must be provided at the time of the deposit, unless the deposit is not made in person to an employee of the depository bank, or when the decision to delay availability is made after the time of the deposit. If notice is not given at the time of the deposit, the depository bank must mail or deliver the notice to the customer no later than the first business day following the banking day the deposit is made.

A depository bank that extends the time when funds will be available for withdrawal on a case-by-case basis and does not furnish the depositor with written notice at the time of deposit may not assess any fees for any subsequent overdrafts (including use of a line of credit) or return of checks or other debits to the account, if:

However, the depository bank may assess an overdraft or returned check fee if it includes a notice concerning overdraft and returned check fees with the disclosure required in §229.16(c)(2) and, when required, refunds any such fees upon the request of the customer. The overdraft and returned check notice must state that the customer may be entitled to a refund of overdraft or returned check fees that are assessed if the check subject to the delay is paid, and state how to obtain a refund.

Under §229.16(d), if a credit union begins to accrue interest or dividends on all deposits made in an interest-bearing account, including cash deposits, at a later time than the day specified in §229.14(a), the institution’s specific policy disclosures must contain an explanation of when interest or dividends on deposited funds will begin to accrue.

Section 229.17(a) states a bank must provide potential customers with the disclosures described in §229.16 before an account is opened.

Under §229.18(a), all preprinted deposit slips given to customers must include a notice that deposits may not be available for immediate withdrawal.

Section 229.18(b) provides that a bank must post, at a conspicuous place at each location where its employees receive deposits to consumer accounts, a notice that sets forth the time periods applicable to the availability of funds deposited.

Under §229.18(c), a depository bank must post or provide a notice at each ATM location that funds deposited in the ATM may not be available for immediate withdrawal. A depository bank that operates an off-premises ATM from which deposits are removed not more than two times each week, as described in §229.19(a)(4), must disclose at or on the ATM the days in which deposits made at the ATM will be considered received.

Section 229.18(d) states a bank must provide a copy of its specific availability policy disclosure described in §229.16 to any person who requests it.

Thirty days prior to implementation, a bank must send notification of a change to the bank’s availability policy to all account holders, if adversely affected by the change. Under §229.18(e), changes that result in faster availability may be disclosed no later than 30 days after implementation.

Section 229.19(a) provides rules that govern when funds are considered deposited for purposes of Subpart B of the regulation. The time that funds must be made available for withdrawal is measured from the day the deposit is "received. " Funds received at a staffed teller station or ATM are considered deposited when received by the teller or placed in the ATM. Funds mailed to the depository bank are considered deposited on the banking day they are received by the depository bank. The funds are received by the depository bank at the time the mail is delivered to the bank, even if the mail is initially delivered to a mail room, rather than the check processing area.

Funds, however, may also be deposited at an unstaffed facility such as a night depository or lock box. Funds deposited at a night depository are considered deposited on the banking day the deposit is removed, and the contents of the deposit are accessible to the depository bank for processing. For example, some businesses deposit their funds in a locked bag at the night depository late in the evening and return to the bank the following day to open the bag. Other depositors may have an agreement with their bank that the deposit bag must be opened under the dual control of the bank and the depositor. In these cases, the funds are considered deposited when the customer returns to the bank and opens the deposit bag.

Funds deposited through a lock box arrangement are considered deposited on the day the deposit is removed from the lock box and are accessible to the depository bank for processing. A lock box is typically used by a corporation for the collection of bill payments or other check receipts.

The regulation contains a special rule for off-premise ATMs that are not serviced daily. Funds deposited at these ATMs are considered deposited on the day they are removed from the ATM, if the ATM is not serviced more than two times each week. This special provision is geared toward those banks whose practice is to service remote ATMs infrequently. If a depository bank uses this provision, it must post a notice at the ATM informing depositors that funds deposited at the ATM may not be considered received on the date of deposit.

Funds deposited on a day the depository bank is closed, or after the bank’s cut-off hour, may be considered made on the next banking day. Generally, a bank may establish a cut-off hour of 2:00 p.m. or later for receipt of deposits at its main office or branch offices. A cut-off hour of 12:00 noon or later may be established for deposits made to ATMs, lock boxes, night depositories, or other off-premises facilities. (As specified in the commentary to §229.19(a), the noon cut-off period relates to the local time of the branch or other location of the depository bank where the account is maintained or the local time of the ATM or off-premise facility).

Different cut-off hours may be established for different types of deposits. For example, a 2:00 p.m. cut-off for receipt of check deposits and a later time for receipt of wire transfers is permissible. Location can also play a role in the establishment of cut-off hours. For example, a different cut-off hour may be established for ATM deposits than for over-the-counter deposits, or for different teller stations at the same branch. With the exception of the 12:00 noon cut-off hour for deposits at ATMs and off-premise facilities, no cut-off hour for receipt of deposits can be established earlier than 2:00 p.m.

Section 229.19(b) discusses funds availability at the start of a business day. Generally, funds must be available for withdrawal by the later of 9:00 a.m. or the time a depository bank’s teller facilities including ATMs are available for customer account withdrawals. (Under certain circumstances, there is a special exception for cash withdrawals-see §229.12(d)). Thus, if a bank has no ATMs and its branch facilities are available for customer transactions beginning at 10:00 a.m., funds must be available for withdrawal by 10:00 a.m. If a bank has 24 hour ATM service, funds must be available by 9:00 a.m. for ATM withdrawals.

The start of business is determined by the local time where the branch or depository bank holding the account is located. For example, if funds in an account at a west coast bank are first made available at the start of business on a given day, and a customer attempts to withdraw the funds at an east coast ATM, the depository bank is not required to make funds available until 9:00 a.m. west coast time (12:00 noon east coast time).

Section 229.19(c) describes the effects of the regulation on the policies of a depository bank. Essentially, a depository bank is permitted to provide availability to its customers in a shorter time than that prescribed in the regulation. It may also adopt different funds availability policies for different segments of its customer base, as long as each policy meets the schedules in the regulation. For example, it may differentiate between its corporate and consumer customers, or may adopt different policies for its consumer customers based on whether a customer has an overdraft line of credit associated with the account.

The regulation does not affect a depository bank’s right to accept or reject a check for deposit, to charge back the customer’s account based on a returned check or notice of nonpayment, or to claim a refund for any credit provided to the customer.

Nothing in the regulation requires a depository bank to have its facilities open for customers to make withdrawals at specific times or on specific days. For example, even though the special cash withdrawal rule set forth in §229.12(d) states that a bank must make up to $400 available for cash withdrawals no later than 5:00 p.m. on specific business days, if a bank does not participate in an ATM system and does not have any teller windows open at or after 5:00 p.m., the bank need not join an ATM system or keep offices open. In this case, the bank complies with this rule if the funds that are required to be available for cash withdrawal at 5:00 p.m. on a particular day are available for withdrawal at the start of business on the following day. Similarly, if a depository bank is closed for customer transactions, including ATMs, on a day funds must be made available for withdrawal, the regulation does not require the bank to open.

If a bank has a policy of limiting cash withdrawals at ATMs to $250 per day, the regulation would not require that the bank dispense $400 of the proceeds of the customer’s deposit that must be made available for cash withdrawal on that day.

Some small financial institutions do not keep cash on their premises and offer no cash withdrawal capability to their customers. Others limit the amount of cash on-premises for bonding purposes, and reserve the right to limit the amount of cash that a customer can withdraw on a given day, or require advance notice for large cash withdrawals. Nothing in the regulation is intended to prohibit these practices if they are applied uniformly and are based on security, operating, or bonding requirements, and are not dependent upon the length of time the funds have been in the customer’s account, as long as the permissible hold has expired. The regulation, however, does not authorize such policies if they are otherwise prohibited by statutory, regulatory, or common law.

Section 229.19(d) contains the rules for using calculated availability on nonconsumer accounts. Under calculated availability, a specified percentage of funds from check deposits may be made available to the customer on the next business day, with the remaining percentage deferred until subsequent days. The determination of the percentage of deposited funds that will be made available each day is based on the customer’s typical deposit mix as determined by a sample of the customer’s deposits. Use of calculated availability is permitted only if, on average, the availability terms that result from the sample are equivalent or more prompt than the requirements of this regulation.

Section 229.19(e) clarifies that, if a customer deposits a check, the bank may place a hold on any of the customer’s funds to the extent that the funds held do not exceed the amount of the check deposited, and the total amount of funds held are made available for withdrawal within the times required in this regulation. For example, if a customer cashes a check (other than an "on us" check) over-the-counter, the depository bank may place a hold on any of the customer’s funds to the extent that the funds held do not exceed the amount of the cashed check.

Section 229.19(f) contains the requirements for employee training and compliance. The EFA Act requires banks to inform each employee who performs duties subject to the Act about its requirements. The EFA Act and Regulation CC also require banks to establish and maintain procedures designed to ensure and monitor employee compliance with such requirements.

Section 229.19(g) explains the effect of a merger transaction. Merged banks may be treated as separate banks for a period of up to one year after consummation of the merger transaction. However, a customer of any bank that is a party to the merger transaction, and has an established account with the merging bank, may not be treated as a new account holder under the new account exception of §229.13(a). A deposit in any branch of the merged bank is considered deposited in the bank for purposes of the availability schedules in accordance with §220.19(a). This rule affects the status of the combined entity in a number of areas. For example:

Section 229.20(a) contains the general rule as to how Regulation CC relates to state laws addressing expedited funds availability.

If a state has a shorter hold for a certain category of checks than is provided for under federal law, that state requirement will supersede the federal provision. For example, most state laws base some hold periods on whether the check deposited is drawn on an in-state or out-of-state bank. If a state contains more than one check processing region, the state’s hold period for in-state checks may be shorter than the federal maximum hold period for nonlocal checks. Accordingly, the state schedule would supersede the federal schedule to the extent that is applies to in-state, nonlocal checks.

The EFA Act also indicates that any state law providing availability in a shorter period of time than required by federal law is applicable to all federally insured institutions in that state, including federally chartered institutions. If a state law provides shorter availability only for deposits in accounts in certain categories of banks, such as commercial banks, the superseding state law continues to apply only to those categories of banks, rather than to all federally insured banks in the state.

Section 229.20(b) provides that other provisions of state laws that are inconsistent with federal law are preempted. State laws requiring disclosure of availability policies for transaction accounts are preempted by the regulation. Preemption does not require a determination of the Federal Reserve Board in order to be effective.

The Federal Reserve Board may issue a preemption determination upon the request of an interested party in a state. The determination will only relate to the provisions of Subparts A and B of the regulation.

Section 229.21(a) sets forth the statutory penalties that can be imposed as a result of a successful individual or class action suit brought for violations of Subpart B of the regulation. Basically, a bank could be held liable for:

These penalties also apply to provisions of state law that supersede provisions of this regulation such as requirements that funds deposited in accounts at banks be made available more promptly than required by this regulation, but they do not apply to other provisions of state law. (See Commentary to Appendix D, §229.20)

Section 229.21(c) states that a bank will not be considered liable for violations of the regulation if it can demonstrate, by a preponderance of evidence, that violations resulted from bona fide errors and that it maintains procedures designed to avoid such errors.

Section 229.21(e) provides that a bank will not be held liable if it acts in good faith in reliance on any rule, regulation, model form (if the disclosure actually corresponds to the bank’s availability policy), or interpretation of the Federal Reserve Board, even if it were subsequently determined to be invalid. Banks may rely on the commentary as well as on the regulation itself.

The liability established by this section does not apply to violations of Subpart C (Collection of Checks) of the regulation, or to actions for wrongful dishonor of a check by a paying bank’s customer. (Separate liability provisions applying to Subpart C are found in §229.38)

Subpart C covers the check collection system and includes rules to speed the collection and return of checks. Basically, these rules cover the return responsibilities of paying and returning banks, authorization of direct returns, notification of nonpayment on large-dollar returns of the paying bank, and mandatory check indorsement standards.

Sections 229.30 and 229.31 require paying and returning banks to return checks expeditiously using one of two standards: the "two-day/four-day" test and the "forward collection" test. Under the "two-day/four-day" test a local check is received by the depository bank two business days after presentment and a nonlocal bank four business days after presentment. The "forward collection" test is when the paying bank uses comparable transportation methods and banks, for returns, as those used for forward collection. The paying bank can return checks directly to the depository bank of any bank agreeing to process the returns, including the Federal Reserve.

Subpart C, in §229.33, also requires a bank to provide notification of nonpayment if it determines not to pay a check of $2,500 or more, regardless of the channel of collection. The regulation addresses the depository bank’s duty to notify its customers that a check is being returned and the paying bank’s responsibility for giving notice of nonpayment.

Other areas that are covered in Subpart C are indorsement standards, warranties by paying and returning banks, bona fide errors and liability, variations by agreement, insolvency of banks, and the effect of merger transactions.

The provisions of Subpart C §229.41 supersede any state law, but only to the extent that it is inconsistent with Regulation CC.

The expeditious return requirements of §229.42 do not apply to checks drawn on the United States Treasury, U.S. Postal Service money orders, and checks drawn on states and units of general local government that are presented directly to the state or units of general local government and that are not payable through or at a bank.

A substitute check for which a bank has provided the warranties described in §229.52 ⁴ is the legal equivalent of an original check if the substitute check:

The reconverting bank must adhere to Regulation CC’s standards for preserving bank indorsements and identifications. A reconverting bank that receives consideration for a substitute check that it transfers, presents, or returns also is the first bank to provide the warranties described in §229.52 and the indemnity described in §229.53.

Starting with the reconverting bank, any bank that transfers, presents, or returns a substitute check (or a paper or electronic representation of a substitute check) and receives consideration for that check warrants that the substitute check meets the legal equivalence requirements and that a check that has already been paid will not be presented for subsequent payment.

Such a bank also provides an indemnity to cover losses that the recipient and any subsequent recipient of the substitute check incurs due to the receipt of a substitute check instead of the original check.

Section 229.54(a) sets forth the conditions under which a consumer may make an expedited recredit claim for losses associated with the consumer’s receipt of a substitute check.

To use the expedited recredit procedure, the consumer must be able to assert in good faith that:

To make a claim, the consumer must comply with the timing, content, and form requirements in §229.54(b). This section generally provides that a consumer’s claim must be received by the bank that holds the consumer’s account no later than the fortieth calendar day after the later of:

Section 229.54(b)(1)(ii) requires the bank to give the consumer an additional, reasonable period of time if the consumer experiences "extenuating circumstances" that prevent timely submission of the claim.

The commentary to §229.60 provides that the bank may voluntarily give the consumer more time to submit a claim than the rule allows.

Under §229.54(b)(2)(ii), a complaint is not considered complete, and thus does not constitute a claim, until it contains all of the required information the rule requires. The rule requires the claim to contain: ⁶

A bank, in its discretion, may require the consumer to submit the claim in writing. If a consumer makes an oral claim to a bank that requires a written claim, the bank must inform the consumer of the in-writing requirement at that time. Under those circumstances, the bank must receive the written claim by the later of ten business days from the date of an oral claim or the expiration of the consumer’s initial 40-day period for submitting a timely claim. As long as the original oral claim fell within the 40-day requirement for notification and a complete written claim was received within the additional ten-day window, the claim meets the timing requirements (§§229.54(b)(1) and 229.54(b)(3)), even if the written claim was received after the expiration of the initial 40-day period.

Section 229.54(c) requires a bank to act on the consumer’s claim no later than the tenth business day after the banking day on which it received the consumer’s claim:

Section 229.54(d) generally requires that recredited funds receive next day availability. However, a bank that provisionally recredits funds pending further investigation may invoke safeguard exceptions to delay availability of the recredit under the limited circumstances described in §229.54(d)(2). The safeguard exceptions apply to new accounts and repeatedly overdrawn accounts, or if the bank has reasonable cause to suspect the claim is fraudulent. A bank may delay availability of a provisionally-recredited amount until the start of the earlier of the business day after the banking day on which the bank determines the consumer’s claim is valid or the 45th calendar day after the banking day on which the bank received the claim if the account is new, the account is overdrawn, or the bank has reasonable cause to believe that the claim is fraudulent. When the bank delays availability under this section, it may not impose overdraft fees on checks drawn against the provisionally-credited funds until the fifth calendar day after the day on which the bank sent the notice regarding the delayed availability.

If, after providing the recredit, the bank determines that the consumer’s claim was invalid, the bank may reverse the recredit. This reversal must be accompanied by a consumer notification using the notice discussed below (Notices Relating to Expedited Recredit Claims).

Section 229.54(e) outlines the requirements for providing consumer notices related to expedited recredit:

Appendix C to Regulation CC contains model forms (models C-23 through C-25) that a bank may use to craft the various notices required §229.54(e). Although there is no statutory safe harbor for appropriate use of these models, the Board published them to assist banks in complying with §229.54(e).

Section 229.55 sets forth expedited recredit procedures applicable between banks. A claimant bank must adhere to the timing, content, and form requirements of §229.55(b) in order for the claim to be valid. A bank against which an interbank recredit claim is made has ten business days within which to act on the claim (§229.55(c)). The provisions of §229.55 may be varied by agreement. (No other provisions of subpart D may be varied by agreement).

Section 229.56 describes the damages for which a bank or person would be liable in the event of breach of warranty or failure to comply with subpart D:

These amounts could be reduced in the event of negligence or failure to act in good faith. It is also important to note that §229.56 has a specific exception that allows for greater recovery as provided in the indemnity section. Thus, a person that had an indemnity claim that also involves a breach of a substitute check warranty could recover all damages proximately caused by the warranty breach.

Section 229.56(b) excuses failure to meet this subpart’s time limits because of circumstances beyond a bank’s control. Section 229.56(c) provides that an action to enforce a claim under this subpart may be brought in any United States district court. Section 229.56(c) also provides the subpart’s statute of limitations: one year from the date on which a person’s cause of action accrues. ⁷ Section 229.56(d) states that if a person fails to provide notice of a claim for more than 30 days from the date on which a cause of action accrues, the warranting or indemnifying bank is discharged from liability to the extent of any loss caused by the delay in giving notice of the claim.

A bank must provide its consumer customers with a disclosure that explains that a substitute check is the legal equivalent of the original check and describes the consumer’s recredit rights for substitute checks. A bank may, but is not required, to use the Board’s model form (model C-5A in appendix C to Regulation CC) to meet the content requirements for this notice. A bank that uses the model form appropriately is deemed to be in compliance with the content requirement(s) for which it uses language from the model form. A bank may provide the notice required by §229.57 along with other information.

Under §229.57(b)(1), a bank must provide this disclosure to existing consumer customers who routinely receive their cancelled checks in their periodic statement no later than the first statement after October 28, 2004. For customer relationships established after that date, a bank must provide the disclosure to a new consumer customer who routinely will receive cancelled checks in periodic statements at the time the customer relationship is established.

Under §229.57(b)(2), a bank also must provide the disclosure to a consumer customer who receives a substitute check on an occasional basis, including when a consumer receives a substitute check in response to a request for a check or a copy of a check, or when a check deposited by the consumer is returned to the consumer as an unpaid item in the form of a substitute check. A bank must provide the disclosure to a consumer customer in these cases even if the bank previously provided the disclosure to the consumer.

When the consumer contacts the bank to request a check or a copy of a check and the bank responds by providing a substitute check, the bank must provide this disclosure at the time of the request, if feasible. Otherwise, the bank must provide the disclosure no later than when the bank provides a substitute check in response to the consumer’s request. It would not be feasible to provide the disclosure at the time of the request if, for example, the consumer made his or her request by telephone or if the bank did not know at the time of the request whether it would provide a substitute check or some other document in response. A bank is not required to provide the disclosure if the bank responds to the consumer’s request by providing something other than an actual substitute check (such as a photocopy of an original check or a substitute check).

When a bank returns a deposited item unpaid to a consumer in the form of a substitute check, the bank must provide the disclosure when it provides the substitute check.

Section 229.58 provides that banks may deliver any notice or other information required under this subpart by United States mail or by any other means to which the recipient has agreed to receive account information, including electronically. A bank that is required to provide an original check or a sufficient copy (each of which is defined as a specific paper document) instead may provide an electronic image of the original check or sufficient copy if the recipient has agreed to receive that information electronically.

A financial institution may delay funds availability for some deposits on a case-by-case basis and on other deposits on an automatic basis. In addition, the institution may make decisions concerning holds and may maintain records at branches as well as the main office. Therefore, to check for compliance with the hold policies, the examiner must determine the types of holds employed and how the decisions are made and where the records are maintained. If a branch makes its decision and maintains its own records, such as in a decentralized structure, sampling may be done at the branch. If the decision to delay availability is either centralized or made at a regional processing center and records are maintained there, sampling for compliance may be made at that location.

(See also §§229.19(a)(4), 229.19(a)(5)(ii) and commentary to 229.19(a), (b) for off-premises ATMs).

Whether a financial institution will or will not function as a "reconverting bank", ⁸ the interlinked nature of the payments system virtually guarantees that every financial institution will at some time receive a substitute check that is subject to the provisions of Subpart D, the "Check 21" section of Regulation CC. While some financial institutions will rapidly migrate toward electronic check exchange, others will proceed more hesitantly. Regardless, because the Check 21 Act provides that a properly prepared substitute check is the "legal equivalent of the original check for all purposes," all banks must be prepared to accept a substitute check in place of the original after the Act’s effective date of October 28, 2004.

One of a bank’s regulatory compliance obligations will be to apprise consumer customers who receive cancelled checks with their periodic account statements or who otherwise receive substitute checks on an occasional basis of their rights under the new law through a consumer awareness disclosure. A bank that provides a substitute check to a consumer also must be prepared to comply with the Check 21 Act’s expedited recredit procedure for addressing errors relating to substitute checks. Even if the customer does not receive actual cancelled checks in a monthly statement but instead receives a truncated summary, the individual may eventually receive a substitute check, either in response to a request for a check or a copy of a check or because a check that the consumer deposited was returned unpaid to the consumer in the form of a substitute check. Some increase in the potential for duplicate posting (substitute check and original) may also involve a degree of consumer education and explanation. The regulation specifies the appropriate timing for the distribution of the consumer awareness disclosure and also provides model language. Finally, institutions will likely want to train their personnel so that they can adequately convey to customers the impact of this new instrument in the payments system.

Determine whether the bank distributes only a single version of its Consumer Awareness Disclosure or whether variations, depending on the circumstances giving rise to distribution, are maintained. Each notice should reflect the following:

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Expedited Funds Availability Act
http://www.fdic.gov/regulations/laws/rules/6500-3240.html#6500ceb602

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Part 229: Availability of Funds and Collection of Checks (FRB Regulation CC)
http://www.fdic.gov/regulations/laws/rules/6500-3210.html

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FIL 116-2004: Final Amendments to the Federal Reserve Board’s Regulation CC
http://www.fdic.gov/news/news/financial/2004/fil11604.html

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FIL 54-2004 Check Clearing for the 21st Century Act
http://www.fdic.gov/news/news/inactivefinancial/2004/fil5404.html

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FIL 28-97: Availability of Funds and Collection of Checks
http://www.fdic.gov/news/news/inactivefinancial/1997/fil9728.html

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FIL 67-96: Delayed Availability of Funds
http://www.fdic.gov/news/news/financial/1996/fil9667.html

The FDIC along with the other FFIEC member agencies has developed a computer based training package that may be used to gain familiarity with the Check 21.

This "InfoBase" is accessible through the following link to the FFIEC website: http://www.ffiec.gov/exam/check21/default.htm. It features a 30 minute audio slide presentation, frequently asked questions, and links to other resources. The slide presentation includes discussion about the examination procedures that the FDIC and other FFIEC agencies will use to evaluate compliance with Check 21.

The flow charts on the following pages detail applicable availability schedules for deposits.

Case-By-Case Hold - The time frames listed in the flow charts are the maximum amounts of time that a bank may delay the availability of a deposit. Most banks have a policy of making funds from deposits available sooner than the time periods allowed by the regulation. These banks may, on a case-by-case basis, delay the availability of funds up to the time frames established by the regulation (those shown in the flow charts). When a bank imposes a case-by-case hold, a written notice including the following information must be given to the depositor:

Exception Hold - Another type of hold that may be placed is an exception hold. Section 229.13 discusses the types of exceptions that are allowed. When a bank places an exception hold, a written notice must be provided to the depositor (the notice is not required for the New Account Exception). The exception hold notice must contain the same information as the case-by-case hold notice as well as the reason the exception was invoked. If a bank invokes the Emergency Conditions Exception and the emergency is not over by the time periods set forth in the flow chart for that exception, then the additional time is added once the emergency has ended.

Cash Withdrawal Rule - The bank may extend by one business day the time that funds deposited in an account by certain checks are available for withdrawal by cash or similar means (including electronic payment, issuance of a cashier’s or teller’s check, etc.). The bank shall, however, make $400 of these funds available for withdrawal by cash or similar means not later than 5:00 p.m. on the business day on which the funds would have been available. The flow charts show that for many deposits, the first $100 of the deposit must be given next day availability while availability of the remaining portion of the deposit may be delayed. The $400 which must be made available in accordance with the cash withdrawal rule is in addition to the funds which must be made available in accordance with the first $100 rule. The instances where the cash withdrawal rule applies are denoted with an * on the flow charts.

NEW ACCOUNT EXCEPTION

LARGE DEPOSIT EXCEPTION

The Electronic Fund Transfer Act (EFTA) (15 USC 1693 et seq.) was enacted on November 10, 1978, and is implemented by Federal Reserve Regulation E (12 CFR 205). The EFTA provides a basic framework establishing the rights, liabilities and responsibilities of consumers who use electronic fund transfer (EFT) services and financial institutions that offer these services. Its primary objective is the protection of individual consumers in their dealings with these services. Examples of EFTs are automated teller machine (ATM) transfers, telephone bill-payment transfers, point-of-sale transfers, preauthorized transfers from or to a consumer’s account (i.e. direct deposits or withdrawals of funds), and transfers resulting from debit card transactions, whether or not initiated through an electronic terminal.

As defined in the EFTA, and Section 205.3(b) of Regulation E, the term "electronic fund transfer," refers to a transaction initiated through an electronic terminal, telephone, computer, or magnetic tape that orders, instructs, or authorizes a financial institution to either credit or debit a consumer’s asset account. The term electronic terminal includes point-of-sale terminals, automated teller machines, and cash dispensing machines. The consumer is usually issued a card or a code (known as an access device), or both, that may be used to initiate such transfers.

The following types of electronic fund transfers are not covered by the EFTA:

Section 205.4(a) requires that disclosures be clear and readily understandable, in writing, and in a form the consumer may keep.

Section 205.4(b) permits, at the institution’s option, the disclosure of additional information, and allows disclosures required by other laws (for example, Truth in Lending disclosures) to be combined with Regulation E disclosures.

Section 205.4(d)(1) permits the institution holding an account to combine required disclosures into a single statement if a consumer holds two or more accounts at an institution. Thus, a single periodic statement or error resolution notice is sufficient for multiple accounts. In order to comply with Section 205.4(d)(2), an institution need provide only one set of disclosures for a joint account.

Section 205.4(e) permits two or more institutions that jointly provide EFT services to contract among themselves to fulfill the requirements that the regulation imposes on any or all of them. When making disclosures under Section 205.7 (Initial Disclosures) and Section 205.8 (Change in Terms; Error Resolution Notice), an institution in a shared system need only make those required disclosures that are within its knowledge and the purview of its relationship with the consumer for whom it holds an account.

Section 205.5 governs the issuance of access devices. For access devices that also constitute credit cards, the issuance rules of Regulation E apply if the only credit feature is a preexisting credit line attached to the asset account to cover overdrafts (or to maintain a specified minimum balance). Regulation Z rules apply if there is another type of credit feature, for example, one permitting direct extensions of credit that do not involve the asset account. In general, an institution may issue an access device to a consumer only if:

An institution may issue an access device to each account holder (on a joint account) for whom the requesting holder specifically requests an access device.

An institution may issue an unsolicited access device only if the following four conditions are satisfied:

These conditions are intended to reduce the potential for unauthorized use if the access device is lost or stolen en route to the consumer and to ensure that the consumer is informed of account terms and conditions before deciding whether to accept the responsibilities of having an access device.

A consumer may be held liable for unauthorized EFTs (as defined in § 205.2(m)) only if:

Event	Timing of consumer notification of bank	Maximum liability
Loss or theft of access device *	Within two business days after learning of loss or theft.	Lesser of $50, OR total amount of unauthorized transfers.
Loss or theft of access device	More than two business days after learning of loss or theft.	Lesser of $500, OR the sum of: (a) $50 or the total amount of unauthorized transfers occurring in the first two business days, whichever is less, AND (b) the amount of unauthorized transfers occurring after two business days and before notice to the institution. **
Loss or theft of access device	More than 60 calendar days after transmittal of statement showing first unauthorized transfer made with access device.	For transfers occurring within the 60-day period, the lesser of $500, OR the sum of: (a) lesser of $50 or the amount of unauthorized transfers in first two business days, AND (b) the amount of unauthorized transfers occurring after two business days. For transfers occurring after the 60-day period, unlimited liability (until the institution is notified). ***
Unauthorized transfer(s) appearing on periodic statement (no use of access device)	Within 60 calendar days after transmittal of the periodic statement.	No liability.
Unauthorized transfer(s) appearing on periodic statement (no use of access device)	More than 60 calendar days after transmittal of the periodic statement showing first unauthorized transfer.	Unlimited liability for unauthorized transfers occurring 60 calendar days after the periodic statement and before notice to the institution.
* Includes a personal identification number (PIN) if used without a card in a telephone transaction, for example. ** Provided the financial institution demonstrates that these transfers would not have occurred had notice been given within the two-business-day period. *** Provided the financial institution demonstrates that these transfers would not have occurred had notice been given within the 60-day period.

Section 205.6(b)(4) states that if a consumer’s delay in notifying an institution was due to extenuating circumstances, such as extended travel or hospitalization, the time periods for notification specified above shall be extended to a reasonable time. Also, Section 205.6(b)(6) provides that if any lesser liability limits are imposed by applicable state law or by an agreement with the consumer, those limits shall apply instead of the limits set by this section.

These liability provisions apply to unauthorized EFTs initiated by a combined access devicecredit card, including an access device with overdraft privileges. These provisions do not apply to the unauthorized use of a combined access device-credit card when no EFTs are involved (for example, when the card is used to draw cash advances directly from a credit line).

Notice to an institution about unauthorized use is considered given when the consumer takes whatever steps are reasonably necessary to provide the institution with the pertinent information, whether or not a particular employee actually receives the information. At the consumer’s option, notice may be given in person, by telephone, or in writing. Notice in writing is considered given at the time the consumer deposits the notice in the mail or delivers the notice for transmission by any other usual means to the institution. Notice may also be considered given when the institution becomes aware of circumstances that indicate an unauthorized transfer has been or may be made.

The institution must provide the consumer with the following disclosures, in written, retainable form, before the first EFT is made or at the time the consumer contracts for an EFT service:

If a change in terms is contemplated, the institution must mail or deliver a written notice to the consumer at least 21 days before the effective date of any change in a term or condition required to be disclosed under § 205.7(b) if the change would result in any of the following:

If an immediate change in terms or conditions is necessary to maintain or restore the security of an EFT system or account, prior notice need not be given by the institution. However, if such a change is to be permanent, the institution must provide written notice of the change to the consumer on or with the next regularly scheduled periodic statement or within 30 days, unless disclosures would jeopardize the security of the system or account.

For accounts to or from which EFTs can be made, an error resolution notice (as set forth in 12 CFR 205 Appendix A – Model Form A-3) must be mailed or delivered to the consumer at least once each calendar year. Alternatively, an abbreviated error resolution notice substantially similar to the notice set out in Appendix A (Model Form A-3) may be included with each periodic statement.

Receipts given at electronic terminals are required to provide specific documentation. The receipt must be made available at the time the transfer is initiated at an electronic terminal and must include, as applicable:

An electronic terminal receipt need not be provided for electronic transfers initiated by home banking equipment.

Section 205.9(b) provides the documentation requirements for periodic statements. Periodic statements must be sent monthly if an EFT has occurred, or quarterly if no EFT has occurred. For each EFT made during the cycle, the statement must include, as applicable:

Where a consumer’s passbook may not be accessed by an EFT other than preauthorized transfers to the account, a periodic statement need not be sent, provided that the financial institution updates the consumer’s passbook or provides the required information on a separate document at the consumer’s request. To update the passbook, the amount and date of each EFT made since the passbook was last presented must be listed.

If the consumer has a non-passbook account that may not be accessed by an EFT other than preauthorized transfers to the account, a periodic statement must be sent at least quarterly.

Section 205.10(a)(1) covers preauthorized transfers to a consumer’s account. This section requires that, when an account is scheduled to be credited by a preauthorized EFT from the same payor at least once every 60 days, some form of notice must be provided to the consumer so that the consumer can find out whether or not the transfer occurred.

The notice requirement will be satisfied by the payor’s providing notification to the consumer that the transfer has been initiated. If the payor does not provide notice to the consumer, the burden is on the institution to adopt one of the three alternative procedures for supplying the notice.

Section 205.10(a)(3) requires an institution that receives a preauthorized transfer to credit the consumer’s account as of the day the funds are received.

Section 205.10(b) states that preauthorized transfers from a consumer’s account may only be authorized by the consumer in writing, signed or similarly authenticated by the consumer. Written authorizations include electronic authorizations (such as via a home banking system) which are similarly authenticated by the consumer as long as there are means to identify the consumer (such as a security code) and to make available a paper copy of the authorization (automatically or upon request). In all cases, the party that obtains the authorization from the consumer must provide a copy to the consumer.

Section 205.10(c) gives the consumer the right to stop payment of a preauthorized transfer from an account. The consumer must notify the institution orally or in writing at any time up to three business days before the scheduled date of the transfer. The institution may require written confirmation of an oral stop payment order to be made within 14 days of the consumer’s oral notification. However, the institution may only impose the written confirmation requirement if, at the time the consumer made the oral stop payment order, the institution informed the consumer that written confirmation is required and told the consumer the address to which the confirmation should be sent. If the consumer fails to provide the written confirmation, the oral stop payment order ceases to be binding after 14 days.

Section 205.10(d) deals with a preauthorized transfer from a consumer’s account that varies in amount from the previous transfer under the same authorization or the preauthorized amount. In the event such a transfer is scheduled to occur, the institution or designated payee must mail or deliver to the consumer a written notice, at least 10 days before the scheduled transfer date, containing the amount and scheduled date of the transfer. However, if the institution or the payee informs the consumer of the right to receive advance notice of varying transfers, the consumer may elect to receive notice only when the amount varies from the most recent transfer by more than an agreed upon amount or when it falls outside a specified range.

Section 205.10(e) prohibits the institution from conditioning an extension of credit on the condition of repayment by means of preauthorized EFT, except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer’s account. The section also prohibits anyone from requiring the establishment of an account for receipt of EFTs with a particular institution either as a condition of employment or the receipt of a government benefit.

Section 205.11 sets forth the definition of "error", the steps the consumer must take when alleging an error in order to receive the protection of the EFTA and Regulation E, and the procedures that an institution must follow to resolve an alleged error.

Section 205.11(a), defines the term "error" to mean:

The term "error" does not include a routine inquiry about the balance in the consumer’s account or a request for duplicate copies of documentation or other information that is made only for tax or other record-keeping purposes.

A notice of error is an oral or written notice indicating why the consumer believes an error exists that is received by the institution not later than 60 days after a periodic statement or other documentation which first reflects the alleged error is provided. The notice of error must also enable the institution to identify the consumer’s name and account number, and, to the extent possible, the type, date and amount of the error. An institution may require a consumer to give written confirmation of an error within 10 business days of giving oral notice. The institution shall provide the address where confirmation must be sent. If written confirmation is not received, the institution must still comply with the error resolution procedures, but it need not provisionally credit the account if it takes longer than 10 business days to resolve the matter.

After receiving a notice of error, the institution is required to promptly investigate the alleged error and transmit the results to the consumer within 10 business days. As an alternative to this, the institution may take up 45 calendar days to complete its investigation provided it:

An institution need not provisionally credit the account if:

If, after investigating the alleged error, the institution determines that an error has occurred, it shall promptly (within one business day after such determination) correct the error, including the crediting of interest (if applicable). The institution shall provide within three business days of the completed investigation an oral or written report of the correction to the consumer and, as applicable, notify the consumer that the provisional credit has been made final.

If the institution determines that no error occurred or that an error occurred in a different manner or amount from that described by the consumer, the institution must mail or deliver a written explanation of its findings within three business days after concluding its investigation. The explanation must include a notice of the consumer’s rights to request the documents upon which the institution relied in making its determination.

Upon debiting a provisionally credited amount, the institution shall notify the consumer of the date and amount of the debit, of the fact that the institution will honor (without charge) checks, drafts or similar paper instruments payable to third parties and preauthorized debits for five business days after transmittal of the notice. The institution need honor only items that it would have paid if the provisionally credited funds had not been debited. Upon request from the consumer, the institution must promptly mail or deliver to the consumer copies of documents upon which it relied in making its determination.

If a notice involves an error that occurred within 30 days after the first deposit to the account was made, the time periods are extended from 10 and 45 days, to 20 and 90 days, respectively.

If the notice of error involves a transaction that was not initiated in a state or resulted from a point-of-sale debit card transaction, the 45-day period is extended to 90 days.

Section 205.12 sets forth the relationship between the EFTA and the Truth in Lending Act (TILA) with regard to the issuance of access devices, consumer liability, and investigation of errors. This section also provides standards for determination and procedures for applying for state exemptions.

The EFTA governs:

The TILA governs:

The EFTA and Regulation E preempt inconsistent state laws, but only to the extent of the inconsistency. The Federal Reserve Board is given the authority to determine whether or not a state law is inconsistent. An institution, state, or other interested party may request the Board to make such a determination. A state law will not be deemed inconsistent if it is more protective of the consumer than the EFTA or Regulation E. Upon application, the Board has the authority to exempt any state from the requirements of the Act or the regulation for any class of EFTs within a state with the exception of the civil liability provision.

Section 917 specifically directs the federal financial institution supervisory agencies to enforce compliance with the provisions of the EFTA.

Institutions are required to maintain evidence of compliance with the EFTA and Regulation E for a period of not less than two years. This period may be extended by the agency supervising the institution. It may also be extended if the institution is subject to an action filed under Sections 910, 915 or 916(a) of the EFTA which generally apply to the institution’s liability under the EFTA and Regulation E. Persons subject to the EFTA who have actual notice that they are being investigated or subject to an enforcement proceeding must retain records until disposition of the proceeding. Records may be stored on microfiche, microfilm, magnetic tape, or in any other manner capable of accurately retaining and reproducing the information.

This section applies in limited situations where the institution provides EFT services and issues access devices, but does not hold the asset account and no agreement exists between the service provider and the account at the institution. The transfers initiated by the service-providing institution are often cleared through an automated clearinghouse (ACH). This section divides the responsibilities between the two institutions with the greater responsibility placed on the service-providing institution.

The responsibilities of the service-providing institution are set forth in Section 205.14(b)(1) and (2). The duties of the account-holding institution are found in Section 205.14(c)(1) and (2).

Section 205.15 contains the rules that apply to electronic benefit transfer (EBT) programs. It provides modified rules on the issuance of access devices, periodic statements, initial disclosures, liability for unauthorized use, and error resolution notices.

Section 205.15(a) provides that a government agency is deemed to be a financial institution and subject to the regulation, if it directly or indirectly issues an access device to a consumer for use in initiating an EFT of government benefits from an account. Needs-tested EBT programs established under state or local law or administered by a state or local agency (such as food stamp programs) are exempt. Federally administered EBT programs and state and local employmentrelated EBT programs (such as retirement and unemployment benefits) remain covered by Regulation E. The term account means an account established by a government agency for distributing government benefits to a consumer electronically, such as through ATMs or point-of-sale terminals.

A government agency need not furnish the periodic statement required by §205.9(b) if the agency makes available to the consumer:

A government agency that does not furnish periodic statements in accordance with the above shall be subject to special modified requirements as set forth in §205.15(d).

Section 205.16 requires disclosures at ATMs, before a fee can be charged to the consumer. This applies when a consumer uses an ATM that is operated by a financial institution or other company that does not hold the consumer’s account.

In these cases, the operator of the ATM must disclose the fact that a fee will be charged for providing EFT services or a balance inquiry, AND the amount of the fee. The ATM operator may post this information in prominent and conspicuous location on or at the ATM. Alternatively, the operator may provide the notice on the ATM screen or on paper, before the consumer is obligated to pay a fee.

An ATM operator may only impose a fee on a consumer initiating an EFT service or balance inquiry if the consumer is provided with the required notices AND elects to continue the transaction after receiving the notice.

Section 205.17 contains the rules for electronic delivery of required disclosures, when consumers have consented to receive them electronically. A financial institution that delivers disclosure electronically has two options under the regulation. The financial institution must:

When a disclosure provided by an electronic means is returned to a financial institution as undeliverable, the financial institution shall take reasonable steps to attempt redelivery using information in its files.

Section 912 suspends, under certain conditions, a consumer’s obligation to another person in the event a malfunction in an EFT system prevents payment to the person, until the malfunction is corrected and the EFT may be completed.

Section 914 states that no writing or other agreement between a consumer and any other person may contain any provision that constitutes a waiver of any right conferred or cause of action created by the EFTA. However, Section 914 does not prohibit any writing or other agreement that grants a consumer greater protection or a more extensive right or remedy than that provided by the EFTA or a waiver agreement to settle a dispute or action.

Section 910 provides that institutions subject to the EFTA are liable for all damages proximately caused by failure to make an EFT in accordance with the terms and conditions of an account, in a timely manner, or in the correct amount, when properly instructed to do so by a consumer. However, Section 910 also sets forth certain exceptions when an institution would not be liable for failing to make an EFT. Section 910 also provides that institutions are liable in certain circumstances for failure to make an electronic fund transfer due to insufficient funds and failure to stop payment of preauthorized debits.

A financial institution may also be liable for civil damages if it fails to comply with the EFTA. The civil liability provisions are found in §915. The damages an institution would have to pay in a successful individual action are actual damages and statutory damages between $100 and $1,000, as determined by the court. In a successful class action suit, the institution would have to pay actual damages and statutory damages up to the lesser of $500,000 or 1% of the institution’s net worth. In both successful individual and class actions, court costs and a reasonable attorney’s fee would be recovered by the consumer.

The institution generally will not be liable for violations caused by unintentional bona fide errors that occurred despite the maintenance of procedures reasonably adopted to avoid such errors. Also, the institution will not be liable if it acted in accordance with an official interpretation issued by the Board of Governors of the Federal Reserve System or its authorized staff. An institution cannot be held liable for improper disclosure if it utilized in an appropriate manner a model clause approved by the Board of Governors. Further, an institution can avoid liability by notifying the consumer of a violation, taking corrective action, including adjustment to the consumer’s account and payment of appropriate damages prior to a court case.

Section 916 sets forth provisions for criminal liability. Penalties under these provisions run from a $5,000 fine or imprisonment of not more than one year, or both, for knowing and willful failures to comply with the EFTA, up to a $10,000 fine or imprisonment of not more than ten years, or both, for the fraudulent use of a debit card.

Examination Checklist—Electronic Fund Transfer Act
A. Section 205.5–Issuance of Access Devices
	Yes	No
1. Does the institution issue validated access devices only:
a. In response to requests or applications [§205.5(a)(1)]; or,
b. As a renewal or substitution for an accepted access device [§205.5(a)(2)]; or
2. Does the institution issue unsolicited access devices only when the devices are:
a. Not validated [§205.5(b)(1)]; and,
b. Accompanied by an explanation that the device is not validated, and how to dispose of the device if the customer does not want it [§205.5(b)(2)]; and,
c. Accompanied by the required disclosures, [§205.5(b)(3)]; and,
d. Validated only on consumer request and after proper identification is made? [§205.5(b)(4)]
3. Does the institution verify the consumer’s identity by a reasonable means (such as by photograph, personal visit, or signature)? [§205.5(b)(4)]
B. Section 205.6–Liability of Consumer for Unauthorized Transfers
1. Does the institution impose liability on the consumer for unauthorized transfer only:
a. If an accepted access device is used [§205.6(a)]; and,
b. If the institution has provided a means to identify the consumer to whom it was issued; and,
c. If the institution has provided the disclosures required by Section 205.7(b)(1) (2) and (3).
2. Does the institution NOT use negligence of the consumer as a basis for greater liability than is permissible under Regulation E? [Official Staff Commentary §205.6(b)]
3. Is the consumer’s liability for unauthorized use of a lost or stolen access device limited to the lesser of $50 or actual loss if the consumer notifies the institution within two business days of discovery of loss or theft of the access device? [§205.6(b)(1)]
4. If the consumer fails to notify the institution of loss or theft of an access device within two business days of discovery of loss or theft, is consumer liability limited to $500, as follows: [§205.6(b)(2)]
a. The lesser of $50 or actual loss within the first two business days; and,
b. Unauthorized transfer amounts that occur after the two business days and before notification (provided the institution proves these unauthorized transfers could have been prevented had notification within the two business days occurred)?
5. If a consumer fails to notify the institution of an unauthorized transfer within 60 days of transmittal of the periodic statement upon which that transfer appears, is consumer liability limited to: [§205.6(b)(3)]
a. The lesser of $50 or actual loss that appears on the statement or occurs during the 60 day period; and,
b. The amount of unauthorized transfers that occur after the close of 60 days and before notice to the institution (provided the institution proves that the unauthorized transfers could have been prevented had notification occurred within the 60 days)?
C. Section 205.7–Initial Disclosures
1. Does the institution make the following disclosures:
a. A summary of the consumer’s liability under §205.6 (or lesser liability under state law or agreement)? [§205.7(b)(1)]
b. The telephone number and address of the person or office to be notified when the consumer believes that an unauthorized EFT has been or may be made? [§205.7(b)(2)]
c. The institution’s business days, as determined under §205.2(d)? [§205.7(b)(3)]
d. The type of EFTs that the consumer may make and any limitations on the frequency and dollar amount of transfer? [§205.7(b)(4)] (If details on the limitations on frequency and dollar amount of transfers are essential to maintain the security of the system, they need not be disclosed.)
e. Any charges for EFTs or for the right to make transfers? [§205.7(b)(5)]
f. A summary of the consumer’s right to receive documentation of EFTs, as provided in §205.9, 205.10(a), and 205.10(d)? [§205.7(b)(6)]
g. A summary of the consumer’s right to stop payment of a preauthorized EFT and the procedure for initiating a stop-payment order, as provided in §205.10(c)? [§205.7(b)(7)]
h. A summary of the institution’s liability to the consumer for its failure to make or to stop certain transfers under §910 of the Act? [§205.7(b)(8)]
i. Circumstances under which the institution in the ordinary course of business will disclose information to third parties concerning the consumer’s account? [§205.7(b)(9)]
j. An error resolution notice meeting the requirements of §205.7(b)(10)?
D. Section 205.8–Change in Terms; Error Resolution Notice
1. Has the institution made any changes in a term or condition since the last examination that required a written notice to a consumer? The change would need to result in: increased fees, increased liability for the consumer, fewer types of EFTs available, and stricter limitations on the frequency or dollar amounts of transfers. [§205.8(a)]
a. If so, was the notice provided at least 21 days before the effective date of such change? [§205.8(a)]
2. Does the institution provide either the long form error resolution notice at least once every calendar year or the short form error resolution notice on each periodic statement? [§205.8(b)
E. Section 205.9—Receipts at Electronic Terminals; Periodic Statements
1. Does the institution make a receipt available to the consumer, in a retainable form, at the time an EFT is initiated? [§205.9(a)]
2. Does the receipt contain the following items as applicable: [§205.9(a)]
a. The amount of the transfer (amount may be combined with any transfer charge if certain conditions are met)? [§205.9(a)(1)]
b. The calendar date the transfer was initiated? [§205. 9(a)(2)]
c. The type of transfer and account to or from which funds are transferred? (Transactions are exempt from the type-of-account requirement if the access device used can only access one account.) [§205.9(a)(3)]
d. A number or code that identifies one of the following:
i. the consumer’s account, or
ii. the access device used? [§205.9(a)(4)] NOTE: The number or code need not exceed four digits or letters to comply.
e. Identification or location of the terminal? [§205.9(a)(5)]
f. The name of any third party to or from whom funds are transferred unless the name is provided in a non-machine readable form? [§205.9(a)(6)]
3. Does the institution mail or deliver a periodic statement for each monthly or shorter cycle in which an EFT has occurred? [§205.9(b)]
4. If no EFTs have occurred, has the institution mailed or delivered a periodic statement at least quarterly for non-passbook accounts? [§205.9(b)]
5. Does the periodic statement or accompanying documents contain the following items: [§205.9(b)(1)]
a. The amount of the transfer (amount may include transfer charge if it was added in accordance with the terminal receipt requirements); [§205.9(b)(1)(i)]
b. The date the transfer was posted to the account; [§205.9(b)(1)(ii)]
c. The type of transfer and account; [§205.9(b)(1)(iii)]
d. The location of the terminal; [§205.9(b)(1)(iv)]
e. The name of any third party to or from whom funds were transferred; [§205.9(b)(1)(v)] Yes No
f. The account number(s); [§205.9(b)(2)]
g. The total amount of any fees or charges assessed during the statement period for EFTs, the right to make EFTs or for account maintenance (excluding any finance charges under Regulation Z, overdraft or stop payment charges and any transfer charges combined with transfer amounts under §205.9(a)); [§205.9(b)(3)]
h. The beginning and ending balances; [§205.9(b)(4)]
i. The address and telephone number to be used for inquiries or notice of errors; and, [§205.9(b)(5)
j. If applicable, the telephone number to use in finding out whether a preauthorized credit has been made as scheduled? [§205.9(b)(6)]
6. For passbook accounts that only receive preauthorized credits, does the institution upon presentation by the consumer enter in a passbook or on a separate document the amount and date of each EFT made since the passbook was last presented? [§205.9(c)]
F. Section 205.10–Preauthorized Transfers
1. If a consumer’s account is to be credited by a preauthorized EFT from the same payor at least once every 60 days: [205.10(a)(1)]
a. Does the institution provide oral or written notice, within two business days, after the transfer occurs or was scheduled to occur, that the transfer did or did not occur; or
b. If the telephone alternative is selected, does the institution disclose the telephone number in initial disclosures and on each periodic statement; and
c. Is the number "readily available" during the institution’s business hours?
2. Does the institution credit the consumer’s account for preauthorized EFTs as of the day the funds are received? [§205.10(a)(3)]
3. Does the institution obtain authorization from the consumer for preauthorized EFTs? [§205.10(b)]
4. Does the financial institution comply with §205.10(c) regarding stop payment orders?
5. If a preauthorized EFT from a consumer’s account varies in amount from the previous transfer under the same authorization or preauthorized amount, does the institution provide proper notice at least ten days before the scheduled date of transfer? [§205.10(d)] NOTE: If the designated payee makes the notification, the institution is absolved from this requirement.
6. Does the institution refrain from conditioning an extension of credit to a consumer on repayment by preauthorized EFTs? [§205.10(e)(1)]
7. Does the institution refrain from requiring a consumer to establish an account with a particular institution for receipt of EFTs as a condition of employment or receipt of a government benefit? [§205.10(e)(2)]
G. Section 205.11–Procedures for Resolving Errors
1. If the institution requires a written confirmation of an error within ten business days of an oral notice, is this requirement disclosed to the consumer with the address of where it must be sent? [§205.11(b)(2)]
2. Does the institution promptly investigate alleged errors and resolve them within ten business days of receiving a notice of error? [§205.11(c)(1)]
3. Does the institution inform the consumer of the results of the investigation within three business days after completing its investigation? [§205.11(c)(1)]
4. After the institution determines an error occurred, is the error corrected within one business day? [§205.11(c)(1)
5. If the institution needs more time and informs the consumer that it may take up to 45 days, does the institution: [§205.11(c)(2)]
a. Provisionally credit the amount of the alleged error (including interest, where applicable) to the consumer’s account within ten business days of the initial report (except where written confirmation is required but not received within ten business days)? [§205.11(c)(2)(i)]
b. Notify the consumer within two business days of the amount and date of the provisional crediting and the fact that the consumer will have full use of funds pending the outcome of the investigation? [§205.11(c)(2)(ii)]
c. Give the consumer full use of the funds during the investigation period? [§205.11(c)(2)(ii)]
6. If the institution provisionally credited the consumer’s account and determines that an error has occurred, have procedures been established to: [§205.11(c)(2)]
a. Correct the error (including crediting interest or refunding fees) within one business day? [§205.11(c)(2)(iii)]
b. Notify the consumer within three business days of the correction and that a provisional credit has been made final? [§205.11(c)(2)(iv)]
7. If the institution determines that no error has occurred, have procedures been established to: [§205.11(d)]
a. Within three business days of concluding the investigation, provide a written explanation of its findings and include the notice of the consumer’s right to request the documents upon which the institution relied in making its determination? [§205.11(d)(1)]
b. Provide copies of documents?
c. Upon debiting a provisionally credited amount, notify the consumer of the date and amount of the debit and the fact that the institution honors checks and drafts to third parties and preauthorized transfers for five business days after notification (specifying the calendar date debiting will occur) to the extent that they would have been paid if the provisionally credited funds had not been debited? [§205.11(d)(2)]
H. Section 205.13–Administrative Enforcement
1. Has the institution preserved evidence of compliance with the requirements of the Act for a two-year period or longer? [§205.13(b)]
I. Section 205.15—Electronic Fund Transfer of Government Benefits
1. If a government agency does not provide a periodic statement for electronic government benefits, does the agency:
a. make the consumer’s account balance available though a readily available telephone line and at a terminal; [§205.15(c)(1)]
b. promptly provide a written history of the consumer’s account transactions in response to a request that covers at least 60 days preceding the date of request by consumer; and [§205.15(c)(2)]
c. provide modified initial disclosures according to §205.15(d)(1) and an annual error resolution notice according to §205.15(d)(2)?
J. Section 205.16 – Disclosures at Automated Teller Machines
1. Does the bank assess fees to non-customers who use the bank’s ATMs?
a. If yes, does the bank provide appropriate notice to consumers regarding the fees?
b. Are the notices provided before consumers are obligated to pay the fee?
K. Section 205.17 – Electronic Communications
1. Does the bank deliver required disclosures electronically?
2. Does the bank send the disclosures to consumers’ e-mail addresses or make the disclosure available at another location such as a web-site?
a. If disclosures are made available at another location such as a web-site, are consumers notified of the availability of these disclosures?
3. If electronic communications of disclosures are returned as undeliverable, does the institution take reasonable steps to attempt delivery using information in its files?
L. Internal Control Procedures
1. Does the institution have adequate procedures to insure that notification of loss, theft, or unauthorized use promptly results in halting unauthorized transfers from a consumer’s account, and recrediting amounts when appropriate?
2. Do the institution’s procedures indicate a willingness to resolve consumer complaints regarding EFT matters?
3. Does a review of statements indicate that transaction identifications are in compliance with Regulation E?
4. Do automated teller and point-of-sale transfer receipts provide a clear description of the transaction that is in compliance with Regulation E?
5. Is the institution’s advertising of EFT services free of ambiguous and deceptive statements?
6. Is the consumer’s responsibility with regard to personal access codes explained?
7. Does a review of merchant agreements and internal controls indicate that consumers are treated consistently with what has been disclosed to them (transaction limitations, costs, documentation, identification, etc.)?
8. Does the institution maintain any log or tracking sheet for error resolution?
9. Is personnel able to distinguish between the applicability of Regulation E and Z as part of the issuance of debit and credit cards, error resolution procedures and consumer liability?

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Electronic Fund Transfer Act
http://www.fdic.gov/regulations/laws/rules/6500-1350.html

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Part 205, Electronic Fund Transfers (FRB Regulation E)
http://www.fdic.gov/regulations/laws/rules/6500-3100.html#6500part205rege

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Advisory Opinion 94-21: User’s Rights Under the Electronic Funds Transfer Act in the Event a Bank Error Regarding and Electronic Wire Transfer
http://www.fdic.gov/regulations/laws/rules/4000-8930.html#400094-21

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FIL 33-2001: Electronic Fund Transfers
http://www.fdic.gov/news/news/inactivefinancial/2001/fil0133.html

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FIL 25-2001: Electronic Fund Transfers
http://www.fdic.gov/news/news/inactivefinancial/2001/fil0125.html

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FIL 114-98: Electronic Fund Transfers Act, Consumer Leasing Act, and Truth in Savings Act
http://www.fdic.gov/news/news/inactivefinancial/1998/fil98114.html

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FIL 31-96: Electronic Fund Transfer Act
http://www.fdic.gov/news/news/inactivefinancial/1996/fil9631.html

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Examination Procedures The FFIEC approved EFT examination procedures follow or can be found on line at:
http://fdic01/division/dsc/memos/memos/direct/eftmemo.pdf

The procedures and guidance in this section apply to deposit accounts at banks that are held by or offered to a consumer, including time, demand, savings, and negotiable order of withdrawal accounts. Banks are required to provide consumers with disclosures that assist them in meaningful comparisons between the competing claims of depository institutions with regard to deposit accounts.

Part 230 of the Board of Governors of the Federal Reserve System regulations, Regulation DD, implements the Truth in Savings Act, which requires the disclosure of the terms and conditions of deposit accounts offered by banks. The purpose of the act and regulation is to assist consumers in making informed decisions about accounts at depository institutions.

The major provisions of the regulation deal with the clear and uniform disclosure of the rates of interest, annual percentage yields, fees, and other account terms, the calculation and payment of interest on accounts, and the advertising of accounts.

"Account" A deposit account at a depository institution that is held by or offered to a consumer. It includes time, demand, savings, and negotiable order of withdrawal accounts.

"Annual Percentage Yield (APY)" A percentage rate reflecting the total amount of interest paid on an account, based on the interest rate and the frequency of compounding for a 365-day period, calculated in accordance with Appendix A of the regulation.

"Average Daily Balance Method" The application of a periodic rate to the average daily balance in the account for that period. The average daily balance is determined by adding the full amount of principal in the account for each day of the period and dividing that figure by the number of days in the period.

"Bonus" A premium, gift, award, or other consideration worth more than $10 (whether in the form of cash, credit, merchandise, or any equivalent) given or offered to a consumer during a year in exchange for opening, maintaining, renewing, or increasing an account balance. The term does not include interest, other consideration worth $10 or less given during a year, the waiver or reduction of a fee, or the absorption of expenses.

"Consumer" A natural person who holds an account primarily for personal, family, or household purposes, or to whom such an account is offered. The term does not include a natural person who holds an account for another in a professional capacity.

"Daily Balance Method" The application of a daily periodic rate to the full amount of principal in the account each day. "Periodic Statement" A statement setting forth information about an account (other than a time account or passbook savings account) that is provided to a consumer on a regular basis four or more times a year.

"Stepped-Rate Account" An account that has two or more interest rates that take effect in succeeding periods and are known when the account is opened.

"Tiered-Rate Account" An account that has two or more interest rates that are applicable to specified balance levels. There are two acceptable tiering methods. For purposes of examples of these methods discussed below, assume the following:

Interest rate (percent)	Deposit balance required to earn rate
5.25%	Up to but not exceeding $2,500.
5.50%	Above $2,500 but not exceeding $15,000.

Under Tiering Method A, an institution pays on the full balance in the account the stated interest rate that corresponds to the applicable deposit tier. For example, if a consumer has a balance of $8,000, the institution pays the 5.50% interest rate on the entire $8,000.

Under Tiering Method B, an institution pays the stated interest rate only on that portion of the balance within the specified tier. For example, if a consumer has a balance of $8,000, the institution pays 5.25% on $2,500 and 5.50% on $5,500 (the difference between $8,000 and the first tier cut-off of $2,500).

"Variable-Rate Account" An account in which the interest rate may change after the account is opened, unless the institution contracts to give at least 30 calendar days advance written notice of rate decreases.

The examination objectives are to:

In accordance with the Electronic Signatures in Global and National Commerce Act (the E-Sign Act) and Section 10 of the regulation, a depository institution may provide by electronic communication any disclosure required by this part to be in writing. Note that it is not mandatory that an institution provide disclosures electronically.

Regulation DD does not address the issue of requiring monetary adjustments or reimbursement.

To avoid the possibility of an enforcement action, the institution should:

Thus, it is in the financial institution’s best interest to promptly notify account holders of any errors that are identified and promptly adjust those errors. Should a financial institution refuse to notify the account holder of the error and make necessary adjustment, Regional Directors may, in appropriate circumstances, pursue formal enforcement action under Section 8 of the FDI Act.

Review a sample of the financial institution’s records to determine whether the institution has maintained evidence of compliance for a minimum of two years after disclosures are required to be made or action is required to be taken. (§230.9)

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Truth in Savings Act
http://www.fdic.gov/regulations/laws/rules/6500-3400.html#6500fdi262

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Part 230, Truth in Savings (Regulation DD)
http://www.fdic.gov/regulations/laws/rules/6500-3250.html

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Advisory Opinion 94-54: Regulation DD – Truth in Savings: Disclosures in Advertisements Soliciting Deposits
http://www.fdic.gov/regulations/laws/rules/4000-9260.html#400094-54

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Advisory Opinion 93-67: Regulation DD – Tiered-Rate Accounts and Disclosure Statement Requirements
http://www.fdic.gov/regulations/laws/rules/4000-8560.html#400093-67

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Advisory Opinion 93-56: Regulation DD – Sufficiency of Proposed Disclosures of Annual Percentage Yields for Tiered- Rate Accounts
http://www.fdic.gov/regulations/laws/rules/4000-8450.html#400093-56

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DCA RD Memo 02-001: Repeal of TISA Civil Liability and Impact on General Enforcement Authority
http://fdic01/division/dsc/memos/memos/direct/02_001.pdf

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FIL 114-98: Electronic Fund Transfers Act, Consumer Leasing Act, and Truth in Savings Act
http://www.fdic.gov/news/news/inactivefinancial/1998/fil98114.html

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FIL 12-95: Truth in Savings Act
http://www.fdic.gov/news/news/inactivefinancial/1995/fil9512.html

Prematurity Disclosures for Time Accounts
	Automatically Renewable ("Rollover") Time Accounts	Nonautomatically Renewable ("Nonrollover") Time Accounts
<= 1 Month	No advance notice required.	No notice required.
> 1 Month but <= 1 Year	Timing: (A) 30 (calendar) days before maturity; or (B) 20 (calendar) days before end of grace period, if grace period of at least 5 (calendar) days is provided. Content: Interest rate and APY for new account (or fact that rates have not been determined, when they will be, and telephone number for consumer to call for rates), and either: (A) date of maturity of existing and new account, and any change in terms; or (B) full disclosure for account (Section 4(b)) and date of maturity for existing account.
> 1 Year	Timing: Same as for accounts greater than one month and not more than one year. Content: Full disclosures for account (Section 4(b)) and date of maturity for existing account.	Timing: 10 (calendar) days before maturity. Content: Maturity date, and whether or not interest will be paid after maturity

Truth In Savings - Examination Checklist
Section 230.3 - General Disclosure Requirements
	Yes	No
1. Does the institution make the required disclosures clearly and conspicuously in writing and in a form the consumer may keep? (§230.3(a))
2. If the disclosures required by the regulation are combined with disclosures for the institution’s other accounts, is it clear which disclosures are applicable to the consumer’s account? (§230.3(a))
3. Do the disclosures reflect the terms of the legal obligation between the consumer and the institution? (§230.3(b))
4. When orally responding to a consumer’s inquiry about interest rates, does the institution state the annual percentage yield? (§230.3(e))
5. Are all annual percentage yields accurate to within .05% above or below the annual percentage yield determined in accordance with Appendix A of the regulation? (§230.3(f)(2))
Section 230.4 - Account Disclosures
1. Does the institution provide initial disclosures before an account is opened or a service provided, whichever is earlier? (§230.4(a)(1))
2. If the consumer is not present, does the institution mail or deliver the disclosures no later than ten business days after the account is opened or the service is provided (whichever is earlier)? (§230.4(a)(1))
3. Does the institution provide account disclosures to consumers upon request? (§230.4(a)(2)(i))
4. If the consumer’s request is not made in person, does the institution mail or deliver the account disclosures within a reasonable time after it receives the request? (§230.4(a)(2)(i)
5. In providing disclosures upon request, does the institution do the following: (§230.4(a)(2)(ii)(A)& (B))
• Specify an interest rate and APY that was offered within the most recent seven calendar days?
• State that the rate and yield are accurate as of an identified date?
• Provide a telephone number consumers may call to obtain current rate information?
6. Do account disclosures include the following rate information (as applicable): (§230.4(b)(1)(i))
• The annual percentage yield and interest rate, using those terms?
• For fixed-rate accounts, the period of time the interest rate will be in effect?
7. Do disclosures for variable-rate accounts include the following: (§230.4(b)(1)(ii))
• The fact that the interest rate and APY may change?
• How the interest rate is determined?
• The frequency with which the interest rate may change?
• Any limitation on the amount the interest rate may change?
8. Do the account disclosures describe the frequency with which interest is compounded and credited? (§230.4(b)(2)(i))
9. Do the account disclosures include a statement that interest will not be paid if consumers close an account before accrued interest is credited? (§230.4(b)(2)(ii))
10. Do the account disclosures describe the minimum balance requirements necessary to open an account, avoid the imposition of a fee, or obtain the APY disclosed? (§230.4(b)(3)(i))
11. Do the account disclosures state how the minimum balance requirement (except the balance to open the account) is determined for these purposes? (§230.4(b)(3)(i))
12. Do the account disclosures include an explanation of the balance computation method used to calculate interest on the account?(§230.4(b)(3)(ii))
13. Do the account disclosures state when interest begins to accrue on noncash deposits? (§230.4(b)(3)(iii))
14. Do the account disclosures state the amount of any fee that may be imposed in connection with the account (or how the fee will be determined) and the conditions under which the fee may be imposed? (§230.4(b)(4))
15. Do the account disclosures include any limitations on the number or dollar amount of withdrawals or deposits? (§230.4(b)(5))
16. For time accounts, do the account disclosures include the following: (§230.4(b)(6))
• The maturity date? (§230.4(b)(6)(i))
• Early withdrawal penalties? (§230.4(b)(6)(ii))
• If compounding occurs and interest may be withdrawn during the term, a statement that the APY assumes that interest remains on deposit and that a withdrawal will reduce earnings? (§ 230.4(b)(6)(iii))
• Information regarding renewal policies: (§230.4(b)(6)(iv))
° Whether the account will renew automatically?
° If the account renews automatically, if there is a grace period and, if so, the length of the grace period?
° If the account does not renew automatically, whether interest will be paid after maturity?
17. Do account disclosures state the amount or type of any bonus and the conditions under which the bonus will be paid? (§230.4(b)(7))
Section 230.5 - Subsequent Disclosures
1. Does the institution provide advance notification to depositors of any change to a term required to be disclosed under section 230.4(b) if the change may reduce the APY or adversely affect the consumer? (§230.5(a)(1))
2. Does the notice include the effective date of the change? (§230.5(a)(1))
3. Is the notice mailed or delivered at least 30 days before the effective date of the change? (§230.5(a)(1))
4. Are exceptions to the notice requirements limited to the following: (§230.5(a)(2))
• Variable-rate changes? (§230.5(a)(2)(i))
• Check-printing fees? (§230.5(a)(2)(ii))
• Short-term time accounts (one month or less)? (§230.5(a)(2)(iii))
5. Are the proper subsequent disclosures provided for the following time accounts:
• That renew automatically with maturities longer than one year? (§230.5(b)(1))
• That renew automatically with maturities of one year or less but longer than one month? (§230.5(b)(2))
• That do not renew automatically with maturities longer than one year? (§230.5(c))
Section 230.6 - Periodic Statement Disclosures
1. Is the annual percentage yield earned disclosed on the periodic statement, using that term? (§230.6(a)(1))
2. Is the APY earned calculated in accordance with Appendix A of the regulation? (§230.6(a)(1))
3. Is the amount of interest earned during the statement period accurately disclosed? (§230.6(a)(2))
4. Are the fees required to be disclosed under section 230.4(b)(4) that were debited to the account during the statement period itemized by dollar and type? (§230.6(a)(3))
5. Is the total number of days in the statement period, or the beginning and ending dates of the period, disclosed? (§230.6(a)(4))
6. If the institution uses the average daily balance method and calculates interest for a period other than the statement period, is the APY earned and the amount of interest earned based on that period rather than the statement period? (§230.6(b))
Section 230.7 – Payment of Interest
1. Does the institution calculate interest on the full amount of principal in the account each day by using either the daily balance method or the average daily balance method? (§230.7(a)(1))
2. Does the institution use the same method to determine any minimum balance required to earn interest as it uses to determine the balance on which interest is calculated? (§230.7(a)(2))
3. Does interest begin to accrue no later than the business day specified for interest-bearing accounts in section 606 of the Expedited Funds Availability Act? (§230.7(c))
4. Does interest accrue until the day the funds are withdrawn? (§230.7(c))
Section 230.8 - Advertising Requirements
1. Do the advertisements refrain from misleading or inaccurate statements, and do they accurately represent the deposit contract? (§230.8(a)(1))
2. Do the advertisements refrain from using the terms "free" or "no cost" if any maintenance or activity fee may be imposed? (§230.8(a)(2))
3. Do the advertisements refrain from using the word "profit" when referring to interest paid on an account? (§230.8(a)(2))
4. If the institution advertises rates on accounts:
• Are the rates stated as annual percentage yields, using that term? (§230.8(b))
• If the institution uses the abbreviation "APY," has the term "annual percentage yield" been stated at least once in the advertisement? (§230.8(b))
• If the institution states the interest rate, using that term, in conjunction with the APY, is it not more conspicuous than the APY? (§230.8(b))
• Are the annual percentage yields and interest rates in the ads rounded to the nearest onehundredth of one percentage point (.01%) and expressed to two decimal places? (§230.3(f)(1))
5. If the institution advertises tiered-rate accounts, does the institution state all the APYs, including ranges where applicable, as well as the corresponding minimum balance requirements? (§230.8(b) Commentary)
6. If the institution advertises stepped-rate accounts, does the institution accurately disclose the APY? (§230.8(b) Commentary)
7. If the institution’s deposit advertisements state the APY, are the following disclosures stated clearly and conspicuously to the extent applicable:
• Variable rate notice? (§230.8(c)(1))
• Time the APY is offered? (§230.8(c)(2))
• Minimum balance to obtain the APY? (§230.8(c)(3))
• Minimum opening deposit? (§230.8(c)(4))
• Effect of fees? (§230.8(c)(5))
• For time accounts, the following features:
° Time requirements? (§230.8(c)(6)(i))
° Applicable early withdrawal penalties? (§230.8(c)(6)(ii))
8. If a bonus is stated in an advertisement, does the advertisement state the following information, as applicable:
• The annual percentage yield, using that term? (§230.8(d)(1))
• Time requirement to obtain the bonus? (§230.8(d)(2))
• Minimum balance required to obtain the bonus? (§230.8(d)(3))
• Minimum balance required to open the account (if that amount is greater than the minimum balance necessary to obtain the bonus)? (§230.8(d)(4))
• When the bonus will be provided? (§230.8(d)(5))
9. For certain advertisements, are the required disclosures limited to the following, as applicable? (§230.8(e)(2)(1))
• The minimum balances to obtain the advertised annual percentage yield (including tiered accounts)?
• The term of time accounts?
• The required interest payout information for the time accounts?
• The time requirement to obtain a bonus?
• The minimum balance to obtain a bonus?
10. If a sign inside the bank states deposit account rates of return, does it include the following disclosures: (§230.8(e)(2)(ii)
• The rate stated as "annual percentage yield" or "APY"? (§230.8(e)(2)(A)
° If an interest rate is stated, is it stated in conjunction with its related "annual percentage yield"? (§230.8(e)(2)(ii)(A)
• A statement advising consumers to contact an employee for further information about applicable fees and terms? (§230.8(e)(2)(ii)(B)
Section 230.9 – Record Retention Requirements
1. Has the institution retained evidence of compliance for a minimum of two years after the date disclosures are required to be made or action is required to be taken? (§230.9(c))
Section 230.10 – Electronic Communications
1. If the institution provides disclosure via electronic communication does it do the following: (§230.10(b))
• Obtain a consumer’s affirmative consent when providing disclosures related to a transaction? (§230.10(c))
• Provide disclosures either by: (§230.10(d)(1) & (2))
° Sending to consumer’s electronic address? or
° Making the disclosures available at another location?
— If making the disclosure available at another location, alert the applicant of the availability of disclosures by sending a notice to the electronic address and making it available for 90 days? ((§230.10(d)(2)(i) & (ii))
• If the electronic communication is returned, takes reasonable steps to attempt redelivery of disclosures returned undelivered? (§230.10(e))

The procedures and guidance in this section apply to demand deposits and negotiable orders of withdrawal (NOW) accounts held at banks. Banks are prohibited from paying interest on demand deposits. However, NOW accounts are not considered "demand deposits" when the entire beneficial interest of the deposit is held by certain eligible depositors.

Part 329 of the FDIC regulations prohibits the payment of interest by banks on any demand deposit.

A demand deposit includes any deposit payable on demand; or any deposit with an original maturity or required notice period of less than seven days; or any deposit representing funds for which the bank does not reserve the right to require at least seven days’ written notice of intended withdrawal; or any other deposit which the depositor is authorized to make more than six preauthorized or automatic transfers or makes more than three of these transfers by check, draft, debit card or similar order.

NOW accounts are interest bearing accounts from which depositors are permitted to make withdrawals by negotiable or transferable instruments for funds transfers to third parties. NOW accounts can be maintained by the following entities, and would not be considered demand deposits under the regulation:

The regulation also provides guidance on allowable transfers for nondemand deposits, interest and premiums, and interest and ten-day grace period for time and savings deposits.

"Cash Management Arrangements" Cash management services provided by financial institutions sometimes include offering sweep accounts and repurchase agreements. Regulatory compliance for these activities is generally reviewed during risk management examinations and during nondeposit product reviews. However, examiners should be aware that Section 329.2 concerning the prohibition of paying interest on demand deposits could be violated based on the definitions of Money Market Deposit Accounts (MMDA) and savings accounts for excessive transactions.

"Money Market Deposit Account (MMDA)" An MMDA is a savings deposit that permits, under the terms of the deposit contract or by practice of the financial institution, the depositor to make no more than six transfers and withdrawals per calendar month or statement cycle of at least four weeks to another account of the depositor or to a third party.

No more than three of the six transfers can be made by check, draft, debit card, or similar order to a third party. The following transfers are not included in the six transfer limitation:

Refer to §204.2(d) of Regulation D and the Interpretative Rule found in Section 329.101 for more guidance on MMDAs.

"NOW Account" NOW Accounts are deposit accounts which consist solely of funds in which the entire beneficial interest is held by:

The following types of entities are not eligible to maintain NOW accounts:

Refer to the following regulatory provisions for guidance on the definition of a NOW account:

"Savings Accounts" Accounts that are subject to the same transaction limitations as MMDAs (including passbook savings accounts and statement savings accounts).

The examination objectives are to:

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Federal Deposit Insurance Act
http://www.fdic.gov/regulations/laws/rules/1000-2000.html#1000sec.18g

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NOW Accounts (An Act)
http://www.fdic.gov/regulations/laws/rules/6500-2530.html#6500now2

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Part 329: Interest on Deposits
http://www.fdic.gov/regulations/laws/rules/2000-5300.html#2000part329

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Advisory Opinion 95-29: Bank Award of Bonus Points and/or Gift Certificates for Use of a Credit Card Does Not Violate §329 as Long as Credit Card is Not Linked to a Demand Deposit Account
http://www.fdic.gov/regulations/laws/rules/4000-9590.html#400095-29

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Advisory Opinion 91-86: Deposits of Real Estate Trust Accounts ("RETA") Program Established by State Statute May, Like IOLTA Deposits, be Held in NOW Accounts
http://www.fdic.gov/regulations/laws/rules/4000-6850.html#400091-86

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Advisory Opinion 91-79: An Electronic Cooperative is Eligible to Hold a NOW Account Under Revised Federal Reserve Board Regulations (12 CFR §204.130)
http://www.fdic.gov/regulations/laws/rules/4000-6780.html#400091-79

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Advisory Opinion 91-19: Whether ATM Promotion Constitutes Payment of Interest on Demand Deposits in Violation of 12 CFR §329
http://www.fdic.gov/regulations/laws/rules/4000-6180.html#400091-19

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Advisory Opinion 91-3: FDIC Defers to Federal Reserve Board’s Interpretation of NOW Accounts (12 CFR §204.130)
http://www.fdic.gov/regulations/laws/rules/4000-6020.html#400091-3

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Advisory Opinion 87-43: Eligibility of Rural Electric Association Cooperative to Hold Funds in NOW Account
http://www.fdic.gov/regulations/laws/rules/4000-2730.html#400087-43

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Advisory Opinion 87-19: Business Partnership and NOW Accounts
http://www.fdic.gov/regulations/laws/rules/4000-2500.html#400087-19

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FIL 18-98: Prohibition Against Payment of Interest on Demand Deposits
http://www.fdic.gov/news/news/inactivefinancial/1998/fil9818.html

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FIL 110-97: Prohibition Against Payment of Interest on Demand Deposits
http://www.fdic.gov/news/news/inactivefinancial/1997/fil97110.html

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FIL 78-97: Prohibition Against Payment of Interest on Demand Deposits
http://www.fdic.gov/news/news/inactivefinancial/1997/fil9778.html

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