Section 14. Interest-Payment Policy

This section of Regulation CC is designed to ensure that institutions promptly begin the accrual of interest on deposits made to interest-bearing accounts. Specifically, the rule says that you must begin to accrue interest on deposits to interest-bearing accounts no later than the time that you receive credit on the deposit yourself. [12 CFR 229.14(a)] You receive credit on deposits of cash, “on us” checks (checks deposited with you and drawn on you), and electronic payments at the time you receive the deposit, according to the Regulation. [Commentary, §229.14(a)-1] The time you receive credit on a deposit of other checks varies from check to check, however, and the rule, therefore, presents a problem with respect to these check deposits. Do you have to track when you receive credit for each check you send along for collection in order to comply with this rule?

Fortunately, the answer is “no.” Section 14 provides a couple of alternative ways in which to comply with the general rule, both of which are easier than tracking each check. One way is to rely on the availability schedules of the institutions to which you send the checks. Section 14 says that you can begin the accrual of interest in your customer’s account at the same time that you are scheduled to have the funds available to you with the institution to which you send the check. [12 CFR 229.14(a)(1)] For example, if you send checks to your Federal Reserve Bank and you get next-day availability on local checks and third-day availability on nonlocal checks, you can begin to accrue interest on all local checks your customer deposits on the first business day after deposit and on all nonlocal checks on the third. Later, if you learn that you did not receive credit for certain checks at the scheduled time, you can charge back any interest paid for the time when the checks were scheduled to be, but were not, available to you. [Commentary, §229.14(a)-3]

The other way is to begin the accrual of interest on a customer’s total deposit of checks on a single day based on the overall availability that you receive for checks regardless of the composition of the particular deposit made by that customer. [12 CFR 229.14(a)(2)] For example, if you generally receive same-day credit on 20 percent of funds deposited by check, next-day credit on 70 percent of funds deposited by check, and second-business-day credit on the remaining 10 percent of funds deposited by check, you could begin accruing interest on a customer’s check deposit in the same way: 20 percent of it begins accruing interest on the day of deposit, 70 percent on the first business day after deposit, and 10 percent on the second business day after deposit. You could do this regardless of the actual composition of a particular deposit; i.e., even if a customer’s deposit was made up entirely of checks for which you receive next-day credit. [Commentary, §229.14(a)-4]

Certain credit unions are not subject to the interest-payment rule of Section 14, however. Credit unions that have a policy of delaying the accrual of interest on all deposits, including deposits of cash, past the time they receive credit do not have to comply with the Section 14 rule, so long as they disclose their interest-payment policy in their initial funds availability disclosure. [12 CFR 229.14(b)] We discussed the disclosure requirement in more detail in Part I of the manual in the Regulation CC chapter.

Another exception to the Section 14 rule exists, and this exception applies to all institutions. This exception says that you are not required to pay interest on any check that is returned unpaid for any reason. [12 CFR 229.14(c)] Although the subject is not addressed in the Regulation, we would presume that if you redeposit such a check, you would be subject to the Section 14 rule again, although you would again be able to charge back any interest paid on the deposit if the check is returned again.