Discussing finance law and how it applies to both consumer banking and the Federal Expedited Funds Availability Act can provide a better understanding of how they all work together. Finance law refers to both federal and state laws which govern and regulate the following areas:
- Insurance;
- Derivatives;
- Commercial banking;
- Capital markets; and
- Investment management.
Some examples of specific areas of finance law include:
- Antitrust Laws: These are laws intended to promote healthy competition, as well as to protect consumers from market practices that could be considered anti-competitive. An example of this would be if assumed competitors invested in each other, or bought another company’s stocks in order to take over the company who is selling the stocks;
- Banking Laws: General banking laws can regulate lending requirements, the specific types of investments which banks may engage with, and reporting requirements which are associated with these types of investments;
- Bankruptcy Laws: Finance laws that are associated with bankruptcy laws influence the way in which financed debts are protected or discharged during the bankruptcy process; and
- Securities Laws: Securities is a general term that refers to shares of stocks and bonds, as well as other interests which involve an investment with a return which is primarily or exclusively dependent upon the efforts of a party other than the investor. Securities laws, then, determining reporting criteria and financial disclosure obligations through the Securities And Exchange Commission (“SEC”).
Consumer banking, which is also known as personal banking, provides financial services to people as individuals and not as business owners. Some of the most common examples of consumer banking services include:
- Credit card services;
- Checking accounts;
- Savings accounts;
- Mortgage loans;
- Personal loans; and
- Certificates of deposit (“CODs”).
What Is The Expedited Funds Availability Act (“EFAA”)?
The Expedited Funds Availability Act (“EFAA”) of 1987 is what regulates the hold periods on deposits that are made to commercial banks. Additionally, the EFAA standardized the use of the deposit holds by financial institutions.
The EFAA is what specifies the types of holds that banks may use on a check deposit, which largely depends on the specific type of account as well as the amount of the deposit. Banks and other such financial institutions are required to inform customers about their policies regarding deposit holds, as well as any changes that are made to such policies.
The EFAA allows banks to place four different types of holds on deposited funds:
- Statutory Holds: Statutory holds may be placed on nearly any deposit. The bank must make the first $200 of the deposit available on the following business day after the deposit is made. The second $600 must be made available on the second business day after the deposit has been made. Finally, the rest of the deposit must be made available on the third business day following the deposit;
- Large Deposit Holds: These holds are placed when the total amount of deposits that are made in one business day exceeds $5,000. While the availability rules for the first and second business days following the deposit are the same as for a statutory hold, on the third business day the bank must make $4,800 of the deposit available. Any remaining amount must be made available on the seventh business day following the deposit;
- New Account Holds: New account holds are placed on deposits that are made to accounts aged less than thirty days old. Such holds are generally lifted on the ninth business day following the initial deposit; and/or
- Exception Holds: In especially exceptional cases, exception holds may be used if the bank branch experiences a power outage or a computer system failure. However, exception holds are primarily used when the bank account has been overdrawn for at least six business days out of the six months prior to the deposit. They may also be used for at least two business days if the account has been overdrawn in an amount which exceeds $5,000. Additionally, an exception hold may be placed on an account if the bank suspects that the check is fraudulent, or will not clear for any reason. Such holds may also be placed on any instrument which has been previously returned for insufficient funds. Exception holds are to be lifted on the seventh business day once the deposit has been made.
It is important to note that specific requirements must be met for each type of hold. Additionally, some banks maintain a policy which requires that funds be held under the specific hold type that legally allows the largest amount to be held for the longest amount of time.
Funds resulting from insurance checks that were drawn on in-state banks must be made available on the fifth business day following deposit. If the bank is out of state, the funds must be available by the seventh business day following the deposit.
Will Customers Who Deposit Checks From Other Banks Need To Wait For Their Funds To Be Made Available?
To reiterate, the Expedited Funds Availability Act (“EFAA”) places a duty on banking institutions to make deposited funds available for withdrawal within prescribed timeframes that are established by federal regulators.
“Available for withdrawal” means that the funds that are deposited by a customer are available for all uses that are generally permitted to the customer, including:
- Writing checks;
- Electronic payments;
- Cash withdrawals; and
- Fund transfers between accounts.
A customer who deposits a check or other such item into their own account, which is drawn on another bank, generally must wait before being able to draw against the deposited item. This waiting period is made up of the estimated time it takes for the check to pass from the depositary bank to the payor bank, and then be returned to the depositary bank if the check is dishonored or returned unpaid by the payor bank.
Generally speaking, banks create schedules which estimate the amount of time it takes for a check to travel to the payor bank and back to the depositary bank, if the check is returned unpaid. These schedules are largely based on the location of the payor bank in association to the depositary bank. One again, waiting periods are considered to be necessary, in order to guard against the risk that the depositing customer will draw against uncollected funds.
Next-business-day availability is required for the following:
- Cash deposits;
- Wire transfers;
- Specific federal, state, and local government checks;
- The first $100 of the total amount that one customer has deposited on any one business day;
- Most checks that are deposited in a branch and drawn on the same, or drawn on another branch of the same depositary institution; and
- Various items such as cashier’s checks, certified checks, and teller’s checks.
How Quickly Are Funds Required To Be Made Available After Depositing A Standard Check? Can I Sue A Bank For Undue Delay?
Per the Federal Expedited Funds Availability Act, the following rules generally apply:
- Two business days after deposit for all local checks;
- Five business days after deposit for all non-local checks;
- A one-day extension applies to a check deposited in an account in Alaska, Hawaii, Puerto
- Rico, or the Virgin Islands, and drawn on a depository institution in any other state, commonwealth, or territory;
- Special availability periods are set for deposits made at a nonproprietary automated teller machine; and
- Various longer periods of availability are permitted for specific circumstances, such as those previously discussed as well as any emergency condition for prevention of fraud losses.
Non-complying depository institutions may face civil liability, as well as class action lawsuits, of which there is a one-year limitation period.
Do I Need An Attorney For Help With The Federal Expedited Funds Availability Act?
If you have any questions regarding banking, you should consult with an experienced and local financial lawyer. An attorney will be most knowledgeable in terms of your state’s specific laws, and how those laws could affect your legal rights and options. Additionally, an attorney will also be able to represent you in court, as needed.
