A Review of Recent Reg. CC Changes

By C/A Staff

Regulation CC is one of those regulations that’s been around for what seems like forever.  Since first becoming effective in 1987, there have been few changes to the regulation itself.  The regulation seems to be stuck in the paper-check writing and cashing phase of the ‘80s and ‘90s despite the ever-changing world of electronic banking, online banking, and electronic transactions. But, thanks to the 2018 Rule, we are beginning to see some forward-moving changes to this regulation.

So, what were some of the changes brought about by the 2018 Rule? New definitions were added to the regulation which related to electronic images, electronic checks and electronic returned checks.  The days of having an original check item available for inspection are almost gone.  The time and costs associated with obtaining an original item are no longer feasible for most banks, so electronic images have become almost essential. To this end, the Final Rule added necessary definitions to fully incorporate electronic checks into the rule. We have available a webinar that extensively reviews the 2018 changes if you’re interested, here: https://compliancealliance.com/news-events/revised-reg.-cc-webinar

The rule also made modifications to the requirements for returning checks in a more expeditious manner and require that both paper and electronic checks comply with a “two-day test”.  This means that banks have to return checks no later than 2:00 P.M. (local time for the depository bank) of the second business day following the banking day in which the check was presented.  The rule holds the paying/returning bank responsible for failure to meet these time requirements.  Under the changes, the amount for notice of nonpayment increased (from $2,500 to $5,000) and the content requirements were revised; while new indemnities were added to address liability for losses created by remote deposit capture and electronically created items. 

If those aren’t enough, we have even more changes just around the corner. The adjustment for inflation amendment to Subpart B of Regulation CC was finalized in June of 2019 by the Federal Reserve and Consumer Financial Protection Bureau (CFPB) and becomes effective July 1, 2020. The amendment implements a statutory adjustment for inflation which results in an adjustment to the dollar amounts under the Expedited Funds Availability (EFA) Act. The first inflation adjustment takes place on July 1, 2020, with the next one on July 1, 2025, and on July 1 of every fifth year after 2025.  The dollar amount adjustments include the following:

  • The $225 next business day availability for non-next day checks (from $200);
  • The $450 for withdrawal by cash or similar means (from $400);
  • The $5,525 threshold for exception holds for new accounts and large deposits (from $5,000); and
  • The $5,525 threshold for determining whether an account has been repeatedly overdrawn (from $5,000).

In addition to the increases noted above, civil liability damages for failure to comply have also increased. The $1,000 and $500,000 amounts for civil liability for failing to comply with Regulation CC will increase to $1,100 and $552,500, respectively. 

Banks need to work with their vendors to ensure the thresholds are set to reflect the requirements of the amendment. Funds availability notices must also be updated to reflect these changes.  Most importantly, a change in terms notice must be sent to customers per Reg. CC. While the regulation allows the notice to be sent before or after the change, we recommend sending it 30 days prior to the effective date of the change. Keep in mind that the change in terms notice will have to be provided to customers with every inflationary increase, every five years.

We have available a webinar that extensively reviews the 2019 changes if you’re interested, here: https://compliancealliance.com/news-events/compliancealliance.com/news-events/reg-cc-2019-webinar as well as a sample change notice here: https://compliancealliance.com/find-a-tool/tool/regulation-cc-change-in-terms-notice-for-new-adjusted-amounts

As always, if you have additional questions about any of these Reg. CC changes, feel free to ask one of our attorneys on the Hotline.