Compliance Blog

Written by David Park, Regulatory Compliance Counsel, NAFCU

Over the past couple of weeks, we have received questions about whether credit unions can place a hold on ACH transfers that will be used to fund the online opening of a checking account or make the funds available the day the account is opened. The fact pattern is something along the lines of 

• A member opens up a checking account online; and
• The member intends to fund the opening of the account with an ACH debit transfer initiated by the credit union.

Section 229.10(b)(1) of Regulation CC generally requires that funds deposited into a checking account by an electronic payment be made available the next business day following the banking day on which the credit union received the electronic payment. And an electronic payment is considered received under Regulation CC when the credit union receiving the payment has received "(i) payment in actually and finally collected funds; and (ii) information on the account and amount to be credited." See, 12 CFR § 229.10(b)(2)(i) & (ii). So the answer seems pretty straight forward. It appears that the funds need to be made available the next business day, and none of the exception holds described in section 229.13 apply to electronic payments.

But it is not that simple. The key here is the definition of an electronic payment in section 229.2(p). Regulation CC defines an electronic payment as a wire transfer or an ACH credit transfer, and that distinction makes all the difference. The ACH debit transfer, which is being used to fund the opening of the checking account, is not an electronic payment under Regulation CC, and therefore, it is not subject to the next day availability rule set forth in section 229.10.

The commentary to Regulation CC explains the difference between ACH credit transfers and ACH debit transfers:

"2. The reference to “debit and credit transfers” does not refer to the corresponding debit and credit entries that are part of the same transaction, but to different kinds of ACH payments. In an ACH credit transfer, the originator orders that its account be debited and another account credited. In an ACH debit transfer, the originator, with prior authorization, orders another account to be debited and the originator's account to be credited." See, 12 CFR Part 229, App'x E, Comment 229.2(b)-2.

And it also explains why ACH debit transfers do not constitute electronic payments covered by Regulation CC:

"2. ACH debit transfers, even though they may be transmitted electronically, are not defined as electronic payments because the receiver of an ACH debit transfer has the right to return the transfer, which would reverse the credit given to the originator. Thus, ACH debit transfers are more like checks than wire transfers. Further, bank customers that receive funds by originating ACH debit transfers are primarily large corporations, which generally would be able to negotiate with their banks for prompt availability." See, 12 CFR Part 229, App'x E, Comment 229.2(p)-2.

When the credit union initiates the ACH debit transfer it is merely crediting the new checking account with funds that will be pulled from the existing account at another financial institution. And at least in terms of policy, it is easy to understand why ACH debit transfers are not treated like ACH credit transfers: Credit unions do not have any collected funds when the ACH debit transfer is initiated.

While the next-day availability rules do not apply, our understanding is that other financial institutions may not make the credited funds available for a reasonable time period in order to ensure that the ACH debit transfer is funded. Therefore, a credit union may need to make a risk-based determination about when to make these funds available, how to disclose this availability to its members, and how to incorporate these considerations into its account agreements.

Interested in learning more information about online loan applications, SBA One, and Vendor Management? Attend our upcoming Compliance Webinars!

April 11: The Quirks of Online Loan Applications

April 16: SBA One - An Overview

April 25: Vendor Management