Uniform Commercial Code, Section 4-213(5)

Section 4-213(5) of the Uniform Commercial Code (UCC) reads as follows:

: A deposit of money in a bank is final when made but, subject to any right of the bank to apply the deposit to an obligation of the customer, the deposit becomes available for withdrawal as of right at the opening of the bank’s next banking day following receipt of the deposit.

Note: Nearly every state has adopted a revised version of Articles 3 and 4 of the UCC. In the revised version, the above provision is reworded and located in Section 4-215(f). Although the Federal Reserve Board has not addressed this revised provision, we believe the preemption issues and analysis should be the same and it would be worth your while to read on, even if your state has adopted the revised version.]

As we pointed out in our chapter on availability time frames, Regulation CC requires that deposits of cash be made available on the first business day after the day of deposit if the deposit is made in person to an employee of the bank. If the deposit is not made in person to an employee, the funds need not be made available until the second business day after the day of deposit.

The question is whether the UCC provision requires deposits of cash that are not made in person to an employee of the bank to be available on the first business day after the day of deposit, rather than the second, as would be required by Regulation CC. If so, the UCC provision should supersede Regulation CC since availability under the UCC is quicker. The issue is complicated by the fact that the UCC also contains a provision that allows persons who are subject to the UCC to change the rules if they all agree to the change. [UCC Section 4-103(1)] In other words, a bank and its depositor could agree, under the UCC, that Section 4-213(5) would not apply and that deposits of cash would not be available until the third business day. Unlike the UCC, Regulation CC does not permit variation of its terms by agreement.

The fact that the parties could agree under the UCC to an availability time frame longer than permitted under Regulation CC could have warranted a complete preemption of Section 4-213(5). However, it was also true that Section 4-213(5), if not varied by the parties, seemed to require some cash deposits to be made available sooner than required by Regulation CC.

As you might have guessed, the Board’s preemption determination ended up in a compromise. The Board said that to the extent that 4-213(5) required earlier availability than Regulation CC, it superseded Regulation CC. However, the Board said the variation-by-agreement authority in the UCC would allow the parties to vary 4-213(5) to extend availability only up to the time availability is required by Regulation CC. To put it another way, Section 4-213(5) will require next-day availability on some cash deposits for which Regulation CC did not require next-day availability. But, if a bank and its customer agree to extend the availability required under Section 4-213(5), they can extend it only up to the second business day for deposits not made in person to an employee of the bank. Deposits of cash made in person to an employee must be made available on the first business day after the day of deposit under Regulation CC—and that cannot be varied.

Unfortunately, no one is sure exactly what types of cash deposits are affected by this preemption determination. Section 4-213(5) refers to “a deposit of money in a bank.” This appears to include more sorts of deposits than Regulation CC’s deposits “made in person to an employee of the bank.” Does Section 4-213(5) require cash deposits made at an automated teller machine (ATM) or a night depository to be available on the next business day? Since it is not authorized to interpret state law, the Federal Reserve Board quite properly did not answer this question in its preemption determination. It merely said that if the UCC phrase is broader than the Regulation CC phrase, then to that extent the UCC provision supersedes Regulation CC. It is up to the state legislatures and the courts to further clarify exactly which cash deposits Section 4-213(5) affects.