On November 20, 2018, the Consumer Financial Protection Bureau (the Bureau) and the Federal Reserve Board (the Board) announced a jointly proposed rule to amend Regulation CC. Since the Dodd-Frank Act became law, the Bureau and the Board (the Agencies) have had joint rulemaking authority for certain provisions of Regulation CC, including over the funds availability rules.
The proposed rule will implement certain cost of living adjustments that the Dodd-Frank Act requires be made every five (5) years to the funds availability rules (the 2018 proposal). The Agencies are also using the occasion to provide an additional opportunity for the public to comment on proposed amendments to Regulation CC that the Board published in 2011 (the 2011 proposal).
The 2018 proposal
The proposed cost of living adjustments are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).This proposed rule would implement the first set of adjustments and provide a timetable for adjustments to be made every five (5) years thereafter.
The current adjustment impacts a number of dollar amounts incorporated into Subpart B of the Regulation including:
The $200 rule (formerly the $100 rule) under Sec.229.10(c)
- The $400 rule under Sec. 229.12(d)
- The $5,000 new account threshold under Sec. 229.13(a)
- The $5,000 large deposit threshold under Sec. 229.13(b), and
- The $5,000 threshold for determining a repeat overdraft under Sec. 229.13(d)(2).
Impact to funds availability disclosure
Regulation CC requires institutions that offer transaction (e.g., checking) accounts to have a funds availability disclosure. Many of the dollar amounts being adjusted appear throughout the funds availability disclosure. As a result, financial institutions that offer checking accounts will need to update their funds availability disclosure to reflect changes to their policy. This change impacts both consumer and commercial accounts.
Regulation CC requires institutions to send change notices to holders of consumer accounts. However, because these changes actually expedite the availability of funds (i.e., they make more money available to the consumer sooner) the change notices do not need to be given out prior to the effective date of the change. Instead, the change notices can be provided to the consumer not later than 30 days after the effective date.
Regulation CC requires an institution to conspicuously post, at locations where the institution’s employees accept deposits, a notice that sets forth institutions’ funds availability time periods applicable to a consumer account. Institutions with a “delayed” availability policy (also called a second-day availability policy) will need to update their posters because the $200 rule, stated on the poster, will be adjusted.
Among other things, financial institutions will also need to update their information technology systems, revise their training materials, and train staff on the changes.
The 2011 proposal
As stated, the Agencies are using this occasion to provide an additional opportunity for the public to comment on the 2011 proposal. The Agencies specifically noted that they have not made a decision on whether to make any aspects of the 2011 proposal final. Instead, they are merely reopening the comment period to gather up-to-date public information for the Agencies to consider.
New model disclosures
Among other things, the 2011 proposal provides a new format for the Regulation CC funds availability disclosures. Generally speaking, this new format uses a tabular format similar to the designs used in the revised privacy disclosures and the TRID disclosures. The 2011 proposal also calls for redesigned hold notices.
Extended hold periods
Of considerable interest to financial institutions is that the 2011 proposal proposed to keep the time period for an extended hold for “on-us” checks at two (2) business days, while reducing the time period for an extended hold for all other checks to four (4) business days (down from seven (7) business days for local checks, and nine (9) business days for non-local checks). Most of the institutions and industry associations that commented opposed this reduction, citing increased fraud and relatively low use of extended holds by institutions as reasons for the Agencies not to make this change.
If the 2011 proposal is adopted, institutions will still need to update funds availability disclosures, update posters, and send change notices. The biggest difference will be the need to redesign their funds availability disclosure. Institutions will also still need to update systems, update training materials, and train staff.
The 2011 proposal also proposed requiring hold notices to be delivered electronically if the notice was not provided in person and the customer had agreed to receive disclosures electronically. This is another provision objected to by many industry commenters.
The Agencies are proposing a mandatory compliance date of April 1, 2020, for the 2018 proposal. If the 2011 proposal is adopted, there is a good chance that rule will be effective simultaneously. It appears that early compliance will be permitted.
The comment period closed February 8, 2019.
If the 2018 proposal is finalized as expected, all financial institutions that offer checking accounts will be impacted. Institutions will need to update disclosures, send change notices, review (and update if necessary) funds availability posters, update information technology systems, revise training materials, and train staff. Stay tuned, finalization of these rules is likely imminent, as the Agencies have stated their intention to propose a compliance date that would be at least 12 months after publication of a final rule in the Federal Register.