Countdown to Cleveland: A Final Checklist
Ensuring Your Institution's Reg CC Funds Availability Policy is Compliant on 2/27/10
By Lori Moore, Director of Compliance

Final preparations should be underway at your institution for the last stage of the Federal Reserve Bank’s migration to a single check processing region.  As of 12:01 a.m. ET on February 26, 2010, the Atlanta check processing office will no longer accept paper items and by the end of the day Cleveland will be the sole paper check processing facility in the U.S. While this consolidation doesn’t change Reg CC per se, through attrition, it does eliminate the “non-local” category of checks. As a result financial institutions will need to adjust their funds availability policy and related procedures and disclosures. No institution should risk being caught off guard as the countdown to Cleveland ticks by, and none need to with the help of the ATTUS countdown checklist.

Countdown Checklist
During this last week before the Atlanta check processing operation is transferred to Cleveland, it is advisable for all financial institutions to double check their preparedness and resolve any outstanding issues. Using this checklist will help ensure that your institution is ready to properly and accurately impose its compliant funds availability policy as of February 27th.   

1. Evaluate Your Institution’s Funds Availability Policy 
If you currently place holds on deposits per Reg CC, two key references within your funds availability policy will need to be changed. First, any reference to “non-local” checks within your policy and its disclosure documents should be removed and updated accordingly. Second, institutions that have described when availability may be delayed beyond the next business day in their initial disclosure need to modify any hold times currently based on the “non-local” check category.  Because all checks currently categorized as non-local will be considered “local” as of February 27th, the longest standard delay will be 2 days. Certain check deposits held under an exception described in section 229.13 of Reg CC must generally be available within 7 business days vs. the current 11. 

Complimentary Webinar Reg CC: The Extinction of Non-Local Checks, Structuring the Holds to Minimize Risk This educational webinar will provide a brief overview of the purpose and scope of Regulation CC and key disclosure requirements. Learn:  How deposited funds are generally categorized; the maximum period the financial institution may delay the customer's ability to withdraw funds; the exceptions the financial institution may invoke to extend the length of the hold; how holds are calculated. During the presentation, we will also look at different scenarios and discuss how the hold should be structured to best minimize the financial institution's risk. 2/25/2010 3:00PM to 4:00PM ET

If you are currently not placing holds due to the complexity of Reg CC for fear of violation, this event is an opportunity to evaluate the cost-benefit analysis of using holds to better protect yourself from loss. Many experts believe that this consolidation, combined with continued expected growth in electronic transactions, will make Reg CC more effective at flushing out check fraud. In turn, this would reduce both the consumer’s risk and financial institutions’ exposure to loss. However, this also means you should initially anticipate and be prepared to deal with an increase in the number of deposited items being returned.

2. Revise Your Institution’s Funds Availability Policy Based on Assessment
Prior to February 27th, all funds availability policy documents should be updated and consequently approved by the appropriate oversight committee.  The revised language should reflect your institution’s evaluation of the impact from the Cleveland consolidation. The ultimate goal of your policy should be to establish procedures designed to reasonably ensure compliance with Reg CC while maximizing the benefit of the hold. And remember your institution’s right to place holds must be clearly stated within your funds availability policy disclosure.

3. Update Your Institution’s Processes and Procedures to Coincide with Revised Policy
All process and procedure documents related to funds availability should be updated to match your revised policy. Although the removal of the “non-local” category simplifies one aspect of Reg CC, there are still multiple variables to consider in order to utilize the permissible hold times while staying compliant with Reg CC. 

Institutions using a manual system for holds are still the most vulnerable to error and thus violations. Now is an opportune time to consider an automated system for placing holds. This would help ensure the accurate and consistent use of your policy, reducing your potential for Reg CC violations, customer dissatisfaction and exposure to loss. An automated system will help significantly shift the scales of your risk-reward calculation.

4. Train All Applicable Staff Members on Revised Policy and Processes
The revised policy document and the updated processes and procedures should be fully distributed among all applicable staff and a training session conducted to explain the impact of the Cleveland migration on your institution’s policy. This is also a good time for a quick refresher on all aspects of the funds availability requirements set forth by Reg CC.

5. Rewrite Disclosure Language to Match Revised Policy
When updating your funds availability policy disclosure to reflect this change, there are several key points to remember. In accordance with section 229.18 of Reg CC, your disclosure must:

• Include a summary of the bank’s funds availability policy used  “in most cases”
• Be clear and conspicuous
• Be provided in a manner the customer can keep
• Use a uniform reference to describe when funds will generally be available. For example “the X business day following the banking day the deposit was made.”
• Contain a description of any categories of deposits or checks used to determine hold duration.  There should be no references to the “non-local” category in your revised disclosure notices

Remember to consider any language you currently have on deposit slips, at ATMs or signage in the branches. If necessary, all need to be updated and ready to go as of February 27th.

6. Inform Existing Customers of the Policy Change
Reg CC requires that a change-in-terms notice be sent to your existing customers when any change occurs to your funds availability policy.  As stated above, the changes should be clearly delineated. If your institution has reserved the right to place holds on non-local checks for the longest permissible time (i.e. 5 and 11 business days) in its disclosure, Reg CC allows the notice to be sent 30 days after the change is implemented, rather than 30 days before. This is because the change is favorable to the customer. You have until March 28 to send these notices to your existing customers. However, if your institution has not currently reserved this right and you now want to in light of this change, consumer account holders must be notified 30 days prior to the date the change would be implemented. 

The change-in-terms notice may be given in any form, provided it passes the “clear and conspicuous” test. If you choose to send a complete revised disclosure, you must direct the customer to the changed provisions. Many institutions are notifying customers through a statement message or separate insert aka “statement stuffers”.

Again, Reg CC does not prescribe a specific method or format for this notice; it only requires that it be clear and conspicuous.

7. Update New Account Disclosure Notices
Although it may seem convenient and inexpensive to just provide your current disclosure along with the change notice to new customers opening up accounts, this is not allowed under the Reg CC disclosure requirements. Your revised funds availability disclosure notice should be grouped together with all other account opening disclosures required by Reg CC. So make sure that the staff responsible for opening new accounts is supplied with the revised disclosures no later than February 27th, and they understand the changes within your policy.

8. Prepare to Use Cleveland Address as of February 25th
Prepare your staff that starting on Thursday, February 25th, all paper forward and return items (i.e. your outgoing cash letter) should be sent to the Cleveland office at the addresses listed below. Items sent to the Atlanta office by U.S. mail between February 26th and March 14th will be forwarded to Cleveland; the credit and availability of funds will be based on when those items arrive in Cleveland. This delay could prove costly for many financial institutions. In addition, starting on March 15th, any items sent via U.S. mail to Atlanta will incur a $10 forwarding fee for each cash letter. More importantly, any deliveries sent via courier to Atlanta after February 26th will be refused.

9. Consider Incorporating Check-21 Enabled Services
The decline in paper checks and the explosion of electronic transactions is the main reason the Federal Reserve Bank began consolidating its check processing regions. As this trend continues, processing paper checks becomes less and less cost effective. To counteract this, the Federal Reserve Bank encourages financial institutions to consider the benefits of converting to Check-21 enabled services such as FedForward®, FedReceipt®, and FedReceipt® for Returns. In addition to its cost benefits, these services can streamline your daily operations and minimize any impact to availability as a result of the Cleveland consolidation.

When Opportunity Knocks
This change presents all financial institutions with an opportunity to not only update their funds availability policy but to strengthen both their actual policy and its execution by staff.  This checklist provides a guide to ensuring your institution is ready for the final merge occurring on February 26th.  And hopefully it also gives valuable ideas for other potential improvements you can make within your institution regarding Reg CC.

For more information on the upcoming change as well as the remaining complexities of Reg CC, join me on February 25th at 3 pm for an encore presentation of the ATTUS Webinar, “Reg CC:  The Extinction of Non-Local Checks, Structuring Holds to Minimize Risk.” 

Lori Moore, a certified regulatory compliance manager (CRCM), serves as the Director of Compliance for ATTUS Technologies, Inc. Lori 26 years of experience in the banking industry, previously serving as IT coordinator, VP of internal audit, VP of risk management, VP of operations, BSA officer and compliance officer for both small and large community banks. Lori has extensive training in bank operations, audit, risk managment and compliance. She received the Outstanding Graduate designation from Texas Bankers Association (TBA) Operations School and served as an honorary member of the TBA Operations Committee.