Compliance Blog

Because of concerns over the threat of fraud during the COVID-19 pandemic, NAFCU credit union members have asked the compliance team when the reasonable cause to doubt collectibility exception hold described in section 229.13 of Regulation CC permits delaying the availability of funds. For example, can a credit union invoke the exception hold if the check is deposited by a member who caused the credit union a loss? Can a credit union rely on the exception hold if a check deposited includes routing information that has been found in other counterfeit checks deposited at the credit union?

Sections 229.10 and 12 set forth Regulation CC’s general requirements for funds availability. Regarding checks, section 229.10 explains that certain types of check deposits (e.g., United States Postal Service money orders; United States Treasury checks; Federal Home Loan Bank or Federal Reserve Bank checks; state or local government checks; cashier’s, certified, or teller checks; on-us checks) may require next-day or second business day availability after the banking day of deposit if certain conditions are satisfied. Depending on the type of check, these conditions may include depositing the check in person, depositing the check into an account held by the payee, or both. Section 229.12 prescribes funds availability requirements for local checks (second business day following the banking day of deposit), which are defined in section 229.2(r), and deposits at nonproprietary ATMs (fifth business day following the banking day of deposit).

Section 229.13 circumscribes the limited situations when a credit union can delay funds availability beyond what is required in sections 229.10 and 12. The reasonable cause to doubt collectibility exception is limited to circumstances in which there is an existence of facts that would cause a well-grounded belief in the mind of a reasonable person that the check is uncollectible. Moreover, “[s]uch belief shall not be based on the fact that the check is of a particular class or is deposited by a particular class of persons.” See, 12 CFR § 229.13(e)(1).

The commentary provides examples of when the exception can be used:

• If a credit union receives notice that a check is being returned unpaid;
• If a credit union receives information before presentment that provides the credit union with a reasonable cause to believe that the check cannot be collected, for example, that payment has been stopped, there are insufficient funds to pay the check, etc.;
• If a check is stale (i.e., more than six months old) or the check is post-dated; or
• If a credit union has confidential information that furnishes a reasonable cause to believe that the check cannot be collected, including “that the depositor is engaging in kiting activity” or that the checks will not be paid because of the insolvency or pending insolvency of the person who wrote the check or the paying bank. See, 12 CFR Part 229, App. E, comments 229.13(e)-2(a) through (d).

The commentary explains the prohibition against invoking the exception because a “check is of a particular class or is deposited by a particular class of persons.” Comment 229.13(e)-4 identifies two examples and expressly prohibits using the exception because a credit union might not have the opportunity to learn whether a check has been returned unpaid before funds must be made available under Regulation CC or based on the depositor’s race or national origin.

The examples of the proper usage of the exception hold described in the commentary suggest that these examples are nonexhaustive. They are not the only times when the reasonable cause to doubt collectibility exception hold can be invoked. If a specific fact pattern is not expressly identified in the commentary or the rule, the credit union may need to make a risk-based determination as to whether the specific scenario is comparable to what has been identified as an acceptable use of the reasonable cause to doubt collectibility exception hold (i.e., the credit union has specific facts about the check that cause a well-grounded belief in the mind of a reasonable person that the check is uncollectible).