What Is Regulation CC?
Let me explain Regulation CC to you directly—it's one of the key banking regulations from the Federal Reserve. This regulation puts into practice the Expedited Funds Availability Act (EFAA) of 1987 and the Check Clearing for the 21st Century Act (Check 21). These laws establish clear rules for how quickly deposits into your transaction accounts become available. They were created to tackle the excessive hold times banks used to impose on checks you deposited.
Understanding Regulation CC
Regulation CC ensures that financial institutions process your deposited checks correctly and on time. If a check is unpaid, it must be returned to the paying bank immediately. Congress passed the Expedited Funds Availability Act in 1987 because banks were holding onto your money for too long after deposits. This act set maximum hold periods, and Regulation CC enforces the disclosure and availability rules from that legislation.
Here's something important you should know: Regulation CC mandates that banks give you, as an account holder, clear disclosures about when your deposited funds will be ready for withdrawal.
How Regulation CC Works
The Federal Reserve's Board of Governors created rules under Regulation CC to speed up the return of unpaid checks, as part of managing the check-clearing system. You'll find check-return rules and same-day settlement rules detailed in Regulation CC. These are designed to lower risks for banks when making funds available after you deposit checks. The check-return rule helps banks quickly learn if a check is unpaid, and same-day settlement levels the playing field between private banks and reserve banks for check payments.
Regulation CC Requirements
Regulation CC also covers the Check Clearing for the 21st Century Act (Check 21), which Congress enacted to boost efficiency in payments. This act removed legal barriers to electronic check processing and allowed substitute checks—electronic versions that legally equal original paper checks.
With this, banks can send checks electronically to those they have agreements with, instead of paper. For banks without agreements, they can send substitute checks. Implementing this under Regulation CC has made check collection in the U.S. mostly electronic, and it lets banks offer you more electronic services.
How Does Regulation CC Protect Me?
When you deposit cash or checks into your account, Regulation CC dictates how soon you can access those funds. Your bank must disclose the availability schedule to you. For instance, cash deposits are available no later than the next business day after deposit. The same applies to government checks and certain others—your bank has to inform you of these timelines.
How Did the Reserve Banks Reduce Check Processing Offices?
Thanks to the Check 21 Act, banks can transmit checks electronically to partners, or use substitute checks otherwise. These changes have made interbank check collection almost entirely electronic, allowing reserve banks to cut their paper-check processing offices from 45 in 2003 to just one by 2010.
How Long Do Checks Take to Clear?
For checks handled through Federal Reserve Banks, collecting institutions get credited and paying institutions get debited, with most settling within one business day.
The Bottom Line
Regulation CC enhances the service you get from banks by controlling how long funds are held based on deposit type, amount, and other factors. Banks must share their hold release schedules with you. It has also modernized check processing electronically, cutting errors, speeding things up, and shrinking check-processing offices from 45 in 2003 to one since 2010.
Key Takeaways
- Regulation CC implements the Expedited Funds Availability Act of 1987, which sets forth requirements that banks make deposited funds available according to specified time schedules.
- Regulation CC requires financial institutions to provide account holders with disclosures that indicate when deposited funds will be available for withdrawal.
- Regulation CC addressed long hold times that customers were facing after they had deposited checks to banks, including implementing maximum hold times.
- The enactment of the Check Clearing for the 21st Century Act, implemented under Regulation CC, allowed check collection among banks in the U.S. to become predominantly electronic-based.
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