Technology plays integral part in Regulation CC Changes

Posted by Chris June 7, 2011 6:04pm

Photo Credit: muresan113

Technology has played an integral part in manyfacets of the world, so why should the banking industry be any different?  Regulation CC, which is composed of theExpedited Funds Availability Act (EFA Act) and the Check Clearing for the 21stCentury Act (Check 21), were enacted to provide guidance in the enhancement ofthe check collection and return process. In recent years, Regulation CC wentthrough drastic changes, most recently being the consolidation of the FederalReserve’s Check Processing regions in an effort to move one step closer to anentirely electronic interbank check collection and return system. Today, thereis now only one Federal Reserve Check Processing region, which made way for theremoval of “non-local” check deposited items, making all “local” checks whichgenerally have second business day availability, available to consumers faster,with the help of technology. As results of these Acts and recent consumertrends show a decrease in check writing by consumers with the increased use ofelectronic banking, “electronic presentment” is becoming more ideal. “Electronicpresentment” is proven to be less costly and less error-prone for Banks asresult of dedicated air and ground transportation for paper checks beingdiscontinued and replaced with “substitute checks” which serve as a legal copyof a check, per Check 21.  In fact, theFederal Reserve System reports, in 2005, that Banks presented only 28% of theirchecks electronically, compared to a 98.4% electronic presentment of checks in2010.

With the recent introduction of the Dodd-FrankAct, such has amended the Expedited Funds Availability Act (EFA Act) byincreasing the amount of funds deposited by a consumer from $100 to $200 to be availablefor next day withdrawal, which will take effect July 21, 2011. When in effect,Banks need to appropriately update disclosures to consumers as well as providecustomer notifications of such changes no later than 30 days from date ofchange since it positively impacts the customer. Furthermore, the “next day”availability requirement will be updated every 5 years after December 31, 2011to adequately reflect inflation.  Asthese changes take effect, the Federal Reserve System will be issuing “modeldisclosures” that Banks may choose to adopt in order to ease the burden oftransition on Banks, and ease the regulatory examination process. With theremoval of “non-local” check items and the eventual movement to an entirelybased electronic interbank system, the Federal Reserve System will be proposingother changes to Regulation CC. For instance, with regards to exception holds,currently, a reasonable period for hold extension is one business day for on-uscheck deposits (for a total 2 day hold), 5 business days for ‘local’ checks(for a total  7 day hold) and 6 businessdays (for a total  11 day hold) for theformer ‘non-local’ checks and deposits at nonproprietary ATMs.  The Federal Reserve System is proposing tomodify these  ‘reasonable periods’ ofholds to a maximum of 2 days for ‘local checks’ and deposits at nonproprietary ATMsreducing total hold period for a maximum of 4 business days as opposed to themaximum of 11 days currently practiced. In addition, the maximum hold period for a deposit made at anonproprietary ATM will be reduced from 5 business days to 4 business days.With the implementation of services such as Remote Deposit Capture, depositsmade at ATMs and even checks deposited from a cell phone, technology isbecoming more prevalent in banking forcing federal agencies to react and remaincurrent with times. Ultimately, such changes will increase efficiency and cutcosts, which benefit both the consumer and financial institutions, especiallywith regard to Regulation CC.

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