Ignoring bank cutoff can be costly

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Dear Dr. Don,
Due to my husband’s unemployment, we had to cash in a small IRA just to make ends meet — at least that was the idea. He received the check on a Friday and deposited it the same day.

I saw it in our account when I paid bills online on Sunday night. But the bank apparently “deferred” it because it was drawn on a different Federal Reserve Bank. This resulted in me accidentally overdrawing the account. In addition, the fees we had to pay for overdrawing prevented other bills from getting paid, and it has just snowballed from there.

My husband was not told when he deposited the check that it was going to be held, nor was there a note on our account online. Do I have an argument with the bank?
— Jennifer Jeepers

Dear Jennifer,
Federal Reserve Regulation CC, “Availability of Funds and Collection of Checks,” speaks to the bank notification requirements to depositors on the availability of checks. “Subpart B — Availability of Funds and Disclosure of Funds Availability Policies” specifically addresses the bank’s obligation to inform depositors of funds availability.

But who wants to read legislative acts to figure out what’s going on? It’s much easier to peruse the “Compliance with Regulation CC: A Guide for Financial Institutions” to see what the Fed is telling banks they must do.

Here are two provisions from that guide:

Posting Your Policy Where Employees Accept Deposits
Your institution must post, in each location where employees accept consumer deposits, a notice of your availability policy pertaining to consumer accounts. The notice must specifically state the availability periods for the various types of deposits that may be made to consumer accounts. The notice need not be posted at each teller window, but it must be posted in a place where consumers seeking to make deposits are likely to see it before making their deposits. For example, the notice might be posted at the point where the line forms for teller service in the lobby. The notice is not required at drive-through teller windows or at night depository locations, but it is required at all automated teller machines.

Printing Your Availability Notice on Deposit Slips
Regulation CC requires that financial institutions include a notice of funds availability on the front of all preprinted deposit slips. The notice need state only that deposits may not be available for immediate withdrawal. The notice is required only on deposit slips that are preprinted with the customer’s name and account number and furnished by your institution in response to a customer’s order. It need not appear on deposit slips that are not preprinted — such as counter deposit slips — or on special deposit slips used to secure next-day availability for state and local government, cashier’s, certified, or teller’s checks. In addition, your institution is not responsible for ensuring that the notice appears on deposit slips that the customer does not obtain from or through you.

I’d be very surprised if your bank did not meet these standards. That leaves the matter of funds availability. Depending on what time of day your husband deposited the check, it’s possible it wasn’t included in Friday’s business.

A bank will often have a cutoff time where any transaction after that time is treated as having occurred in the next day’s business. A deposit late on Friday could be credited on Monday.

The bank also has some leeway when it comes to delaying funds availability — which is also described in the compliance guide. The delay in funds availability has to be for a reasonable period.

You may or may not have some arrows for your quiver in picking a fight with the bank. My best guess from the sidelines is that you won’t be able to find them not in compliance with Regulation CC. It sounds like you were pushing the envelope by writing checks on Sunday for a nonlocal check deposited on a Friday.

However, the online banking system should have been sophisticated enough to warn you of this problem. So, you might have some traction making that argument to the bank’s manager in trying to get the nonsufficient funds charges dropped and persuading the bank not to report these insufficient funds incidents to ChexSystems, the consumer reporting agency for banking relationships.

See yesterday’s column for more about ChexSystems.