Holds on Other Funds

We dealt with this topic briefly in the Regulation CC chapter in Part I of this manual. Again, the “holds on other funds” rule has two elements: First, it allows you to place a hold on funds already available in the customer’s transaction account if you cash a check for the customer. [12 CFR 229.19(e)(2) and Commentary, §229.19(e)-2 and -3] And second, if the customer deposits a check into a transaction account and you make the funds from that check available more quickly than you normally would under your policy, you can place a hold on funds in another account (either a transaction or nontransaction account). [12 CFR 229.19(e)(1) and Commentary, §229.19(e)-2 and -3] Of course, you are required to have included an explanation of this rule in your initial disclosure in order to take advantage of it. The hold that you place in either circumstance cannot be for a larger amount than the amount of the check and cannot be longer than your normal availability time frames, unless you invoke a safeguard exception or a case-by-case exception. [12 CFR 229.19(e)(1) and (2)] The reason for mentioning the rule at this point is to remind you that the time limitations we’ve just gone over that govern your normal availability practices, as well as the holds you place when invoking a safeguard or a case-by-case exception, also govern the holds you place on other funds under this rule.

Again, as we said in the earlier chapter, we question the advisability of relying on the “hold on other funds” rule too much, especially where you are cashing a check. It seems a little deceptive and unfair to the customer to purchase a check for cash, not do anything that would make the transaction appear to be a deposit and a withdrawal of available funds, and then put a hold on other funds that had previously been available for withdrawal. A depositor could reasonably conclude, when you cash a check instead of requiring him or her to deposit the check and withdraw available funds, that you have decided to make available the funds represented by the check, and you will not be restricting availability on any funds in connection with the transaction. If you had wanted to restrict availability, the customer might think, you would not have cashed the check, but would have had him or her deposit it and withdraw other funds. It might be better to treat requests for check cashing as deposits and withdrawals of available funds so as not to mislead the customer.