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As you are probably aware, the joint agencies issued a 63 page final rule on June 24, 2019 that amended some parts of Regulation CC relating to check holds and funds availability. Parts of this rule were mandated by the Dodd-Frank Act while other parts were mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) and some of these changes will have a fairly big impact on financial institutions. It should be noted, however, that this rule is only a portion of the changes to Regulation CC that we eventually expect to see, as the regulators have not yet finalized the 2011 proposed amendments that were re-opened for comment in late 2018. That said, it may take years for those changes to come to fruition, so this article is going to focus on a summary of the Reg CC changes that are required in 2020.
Summary of Reg CC Changes
To keep things simple in understanding this new rule, it is important to realize there were four main changes to the 2019 final rule:
Extending coverage to certain US territories
Corrections to Regulation DD
Inflation adjustments of applicable thresholds
Notification to Customers
The first two requirements listed above (extending coverage and corrections to Reg DD) were both required in August of 2019 and should have had a minimal impact on most financial institutions. Therefore, the two main changes to Regulation CC that are required in 2020 include 1) the inflation adjustments as well as 2) notification to customers.
Summary of Reg CC Inflation Adjustment Requirements
Back in 2010, the Dodd-Frank Act made certain amendments to the Expedited Funds Availability (EFA) Act which were effective on July 21, 2011. These amendments required regular inflation adjustments to certain hold thresholds found in Regulation CC. The 2019 final rule has made the first inflation adjustment in Regulation CC effective on July 1, 2020.
In summary, the July 1 2020 inflation adjustments are going to change four main “thresholds” found in Regulation CC:
$200 is changing to $225 (Note: the $200 amount is still referred to $100 in Reg CC). This amount is used on case-by-case holds and will impact most financial institutions.
$5,000 is changing to $5,525. This amount is used on certain special exception holds, such as large deposit holds, new account holds, and repeatedly overdrawn holds. This change will also impact most financial institutions.
$400 is changing to $450. This relates to the rarely used rule that permits financial institutions to extend holds by one business day when a deposit is taken for withdrawal by cash or similar means.
Civil liability under Regulation CC has been changed from $1,000 and $500,000 to $1,100 and $552,500 respectively.
Summary of Notification Requirements
The next portion of the rule which is required in 2020 relates to customer notification. The bottom line is that the change of terms requirements of Regulation CC will be triggered every time there is an adjustment for inflation, and this starts with the 2020 changes to Regulation CC which are required by July 1, 2020.
Change-in-terms rules of Regulation CC require a financial institution to send a written notice to consumer account holders at least 30 days before implementing a change to the institution’s funds-availability policy and further states that “any change which expedites the availability of such funds shall be disclosed not later than 30 days after implementation.” Therefore, changes made solely related to inflation adjustments must be sent no later than 30 days after implementation as the increased threshold amounts actually make funds available to consumers sooner than they did in the past.
The bottom line is that all customers must be notified of the inflation adjustment changes by July 31, 2020 (assuming financial institutions don’t implement the a changes sooner than July 1, 2020).
A 10-Step Plan for Implementing the July 2020 Reg CC Changes
The following video outlines the steps needed to comply with the July 2020 changes to Regulation CC. The 10-step plan is below.
STEP 1: Create Your Timeline for Implementation
While there are ten steps that need to occur to ensure compliance with the July 2020 Reg CC changes, we believe the first step to comply with the new rules is to start by creating a timeline for implementation. While most financial institutions will most likely wait to implement the changes on the date it must happen by, which is July 1, 2020, some financial institutions may choose to implement the change sooner. Regardless of which approach is taken, it will be important for financial institutions to carefully create a timeline for implementation of the new Reg CC changes (which includes the following steps).
STEP 2: Update Policies and Procedures
The next step to implementing the Regulation CC changes required by July 2020 is to update applicable policies and procedures. While procedures can often be updated fairly quickly, financial institutions will want to ensure that applicable policy changes are approved by the Board of Directors prior to implementation of the change.
STEP 3: Update New Account Disclosures
The third step to implementing the July 2020 changes to Regulation CC is to update your new account disclosures. Specifically, new account disclosures should be reviewed for any reference to the old threshold amounts (e.g. $200, $5,000, $400) and then updated accordingly. In addition, some financial institutions may have included hold threshold information with various terms and condition disclosures which should also be updated as applicable.
STEP 4: Update Hold Notices
The next step to comply with the 2020 changes is to review applicable hold notices (provided at the time a hold is placed) and update them accordingly. Specifically, exception hold notices often have a built-in reference to the $5,000 threshold which will need increased to the new amount of $5,525. For example, Model form C-12 from Appendix C of Regulation CC includes a reference to the $5,000 threshold.
STEP 5: Review Lobby Notices and Update as Applicable
The fifth step to implement the July 2020 changes to Regulation CC is to review applicable lobby notices and update them as applicable. While most financial institutions utilize model form C-18 - which does not include a reference to the thresholds - for their notice at locations where employees accept consumer deposits, optional model form C-17 includes a reference to the first $200 of a day’s deposit and would need updated to the new amount of $225. In addition, some financial institutions have chosen to post their entire Funds Availability Policy (account disclosure) in their lobby, meaning that these disclosures would need updated.
STEP 6: Send Change Notices to Consumers
The sixth step to implementing the Regulation CC changes required by July 2020 is to deliver a change notice to consumers. As the July 2020 changes to Regulation CC benefit consumers (by making more funds available to them sooner), the required change must be provided to consumers no later than 30 days after the change - or July 31, 2020 (assuming the financial institution does not make the change before July 1). According to the final rule and Regulation CC, disclosure of the change can be provided in one of two ways: 1) on or with the periodic statement or 2) as a full (revised) notice. (Note: See Regulation CC for more details on how to comply with the notice requirements.)
STEP 7: Update IT Systems & Review Process
The seventh step for getting up-to-date with the new Reg CC rules is to update your IT system and/or process for actually placing and reviewing placed holds. As the actual hold placement on an account is sometimes completed by employees other than tellers, it will be important for financial institutions to ensure that all back-room operations and procedures are updated to reflect the applicable changes to Reg CC.
STEP 8: Conduct Training
The next step - which is probably the most important step of all - is to conduct training on the changes with applicable employees. While the inflation adjustments may appear simple on the surface, these changes are going to be quite confusing for your front line team. Therefore, we recommend conducting training that includes extensive examples of how the new threshold amounts will apply on and after July 1, 2020.
NOTE: For those interested, we have a training program called Reg CC Training for Tellers which can be viewed (including samples of the presentation) at www.compliancecohort.com/reg-cc-training-for-tellers.
STEP 9: Update Your Board and Senior Management
The ninth step for complying with the recent Regulation CC amendments is to update your board and senior management. While the board should approve any policy changes to your hold procedures (see step 2), your board and management should stay updated on the implementation of the new rules. For example, a summary report of what changes/steps were made could be provided to the board and senior management after the changes are made in your organization. Updating your board and senior management will help to ensure a strong Compliance Management System, especially as it relates to managing regulatory changes.
STEP 10: Plan For Testing
The final step to implement the July 2020 changes to Regulation CC is to plan to test for compliance with the revised procedures, after they become effective in your organization. For example, if your organization waits to implement the changes until July 1, 2020, it would be beneficial to plan your next audit of Regulation CC to occur sometime in the months following the July 1 implementation date.
More Resources for Training on the July 2020 Changes
To further assist financial institutions in training their teams for the upcoming Regulation CC changes, we have created a training program called Reg CC Training For Tellers. You can view the full curriculum and everything included with this program at www.compliancecohort.com/reg-cc-training-for-tellers.