Compliance Blog

Season's Greetings compliance friends! With the upcoming holiday season around the corner, I thought it would be a good idea to review Reg CC's funds availability rules when credit unions close their offices in observance of federal holidays.

Reg CC governs the availability of members' funds that are deposited into transaction accounts. The rule generally requires that cash and certain check deposits be made "available for withdrawal not later than the business day after the banking day on which the funds are deposited." 12 C.F.R. §229.10(a, c). For local check deposits, §229.12(b)requires that funds be made "available for withdrawal not later than the second business day following the banking day on which funds are deposited." Now, it is important to keep in mind the difference between a business day and a banking day. A business day is considered to be any calendar weekday that is not a federal holiday. A banking day on the other hand is any business day on which a credit union is open and able to carry on substantially all of its banking functions. See, 12 C.F.R. §229.2(f). This seems simple enough to understand during the regular course of business, but what happens when a federal holiday falls on a weekend, or the credit union decides to close the Friday after Thanksgiving? How can the credit union be required to make funds available for onsite ATM or overnight lockbox deposits when closed for the holidays?

To start, this only impacts a handful of holidays. Some federal holidays are always on a Monday, such as Labor Day or Memorial Day, and Thanksgiving is always on a Thursday. But for federal holidays with specific dates, such as Veteran's Day, Christmas Day, New Year’s Day, and Independence Day, some years the holiday will fall on a weekend and be officially observed on either the previous Friday, or the following Monday. The federal government seems to recognize Sunday holidays on the following Monday and Saturday holidays on the previous Friday. For example, this month's Veteran's Day (November 11, 2017) will be recognized on Friday, November 10, 2017, granting us an extra day to take advantage of the sales!

Now, ATM and overnight deposits present some challenges when customers expect their deposited funds to be available for withdrawal on days that are not usually considered holidays. The first step to navigating Reg CC's funds availability rules is figuring out when funds are considered deposited. In §229.19(a), the Federal Reserve has determined that funds deposited at a staffed facility or on-site ATM are considered deposited on the day the deposit is given or placed in the ATM. Funds deposited at an overnight depository, lockbox or an off-site ATM are considered deposited on the day the funds are removed and made available for processing by the bank. 12 C.F.R. §229.19(a)(1-4). Regarding federal holidays and other bank closures, the regulation goes on to state that:

"(5) Funds may be considered deposited on the next banking day, in the case of funds that are deposited—

(i) On a day that is not a banking day for the depositary bank; or

(ii) After a cut-off hour set by the depositary bank for the receipt of deposits of 2:00 p.m. or later, or, for the receipt of deposits at ATMs, contractual branches, or off-premise facilities, of 12:00 noon or later. Different cut-off hours later than these times may be established for the receipt of different types of deposits, or receipt of deposits at different locations." See, 12 C.F.R. §229.19(a)

Accordingly, the fact that the credit union is substantially closed for business pushes the calendar forward on when the credit union will be required to make funds available for withdrawal by one banking day. Funds deposited on a day that is not a banking day (i.e. Federal holidays and other days in which the credit union is not carrying on substantially all of its banking functions), would be considered deposited on the following banking day.

Let's consider, for example, a credit union that is essentially closed on the Friday before Veterans Day or the Thursday and Friday of Thanksgiving week. For this credit union, all deposits made at an ATM or overnight lockbox during this time would be considered deposited on the following Monday.  From there, the credit union would follow the general funds availability guidelines. By Tuesday, funds must be available for deposits of cash, electronic payments, U.S. Treasury checks, U.S. Postal Service money orders, Federal Reserve Bank checks, State and local government checks, Cashier's checks, certified checks, and on-us checks. By Wednesday, funds from local checks should be made available for withdrawal. For additional information, the Federal Reserve provides A Guide for Financial Institutions: Compliance with Regulation CC. Happy Shopping!

Veteran’s Day: NAFCU will be closed on Friday in observance of Veteran’s Day. We at NAFCU extend our gratitude and appreciation to current and former members of the military who have bravely served our country. We will return to carrying on substantially all of our blogging functions on Monday, November 13, 2017. Have a nice weekend.