Time’s Up for Old Regulation CC: What’s Changing and Why
Regulations, like old computers or cell phones, can become out of date or require updating. Regulation CC (12 CFR 229), as originally executed, implements the Expedited Funds Availability Act (EFA Act), which was enacted in August 1987 and became effective September 1988.
Prior to that date, many larger banks placed holds on customer deposits in the interest of safety. There was no standardization across the industry and in many cases, these same banks were earning interest on the customer’s dollars prior to making the deposits available to the customers. The original regulation established various dollar amounts and timelines standardizing funds availability for bank customers while still allowing the bank a means to protect itself from bad actors.
Jump forward 30 years. Why change these amounts that must be made available to the customers? One-hundred dollars, the amount required to be made available to customers in 1988, is now worth over $225 with a cumulative inflation rate of over 116%.
In June 2019, the CFPB and the Federal Reserve Board issued a final rule regarding inflation-based adjustments to the dollar amounts required by the Expedited Funds Availability Act (EFA Act) and Regulation CC. The regulation change is designed to update all the original availability amounts now and every five years to keep pace with inflation to the nearest multiple of $25. These initial changes will be effective July 1, 2020.
Inflation Modification Effects
Here are some examples (not all-inclusive) of how this inflation modification will impact the funds available to your customers.
|Availability Requirement||Current Availability Amount||Updated Availability Amount|
|Check deposits not subject to next-day availability||$200||$225|
|Cash withdrawal for local checks and checks deposited at nonproprietary ATMs||$400||$450|
|New accounts||First $5,000||First $5,525|
4 Actions Needed to Adapt to Changes
- Appoint a project manager. Maybe that’s your compliance officer, a risk officer, the head of operations, or a retail manager. This individual should gain an understanding of the changes, identify all the policies, processes, and ways the regulation will affect your bank and your customers.
- Build a schedule of when things will be done and by whom. Start with the effective date of the regulation (July 1, 2020) and work backwards. Does a written policy or process need to be updated? This provides an excellent opportunity to update written processes that are out of date. And make sure to incorporate any other changes that have been implemented but not yet documented or kept current.
- Identify training needs. Front line bankers, back office staff, and management. Be sure to point out the updated processes and be sure to share the “why” with everyone being trained. It’s easier to retain training (the “what”) if you understand background, context, etc., and define “why” it’s important.
- Test the policy. Finally, as Ronald Reagan said, “Trust, but verify.” I’m sure that your team will have done a great job, assign your internal auditor or someone independent of the implementation process, to test (prior to and after July 1) your new policy, any rewritten processes, and most importantly the new receipts that your customers will be receiving to be sure what you planned for – was implemented as expected.
Lastly, a few tips and good questions to ensure a smooth transition:
- Perform a software check: The majority of banks have teller or front line software that completes the hold forms for them. Will your software company update the new availability amounts on July 1st? Or is this something your bank will need to do in advance?
- Evaluate deposits: Who is making the availability decisions regarding your customer’s deposits? A computer? A teller? Make sure you understand how this is implemented at your bank.
- Define processes: Dollar amounts such as those above should be part of your bank’s written processes, and not part of your policy. Then, each time the bank makes a tactical decision about such things as check cashing limits (or something similar), the board isn’t required to review and reapprove a policy.
Regulation CC was due for change, and it is now a matter of adjustments and installation of new processes to adhere to the changes taking effect in July.
Contact a K·Coe advisor with questions regarding the updates and actions needed for 2020’s Regulation CC.