Title: The Expedited Funds Availability Act (EFAA) — What It Is, How Deposit Holds Work, and Practical Steps for Consumers
Key takeaways
– The Expedited Funds Availability Act (EFAA), enacted by Congress in 1987, sets maximum hold periods banks may impose on deposited funds and standardizes how banks disclose their funds-availability policies.
– The Federal Reserve implements the law through Regulation CC (12 CFR 229). Banks must notify customers of their funds-availability policies and of changes.
– Regulation CC/EFAA authorizes four common types of holds: statutory holds, large-deposit holds, new-account holds, and exception holds. Different rules and timelines apply to each.
– Special rules apply to insurance checks (faster availability if drawn on an in-state bank).
– Consumers can reduce or avoid holds by using electronic payment methods, depositing early, or asking their bank for an exception; if a bank violates its obligations, consumers can escalate the issue to regulators.
What is the EFAA (Expedited Funds Availability Act)?
– Purpose: To speed up access to deposited funds and create uniform rules for when banks must make deposited funds available to customers.
– Implementation: The Federal Reserve’s Regulation CC implements EFAA’s rules and outlines required customer disclosures and maximum hold periods.
The four allowed hold types (what they are and timelines)
Note: The examples and timelines below are based on the EFAA/Regulation CC framework described in the source material. Exact availability may vary by institution when different permitted holds apply; banks also have policies that can affect timing within the legal maximums.
1. Statutory holds
– When used: Can be applied to most everyday deposits.
– Timing rules (typical framework):
– Make at least $200 of the deposit available on the next business day after deposit.
– Make an additional $600 available on the second business day after deposit.
– Make the remaining deposited funds available on the third business day after deposit.
– Example: Deposit $1,000:
– Day 1 (next business day): $200 available.
– Day 2: an extra $600 available (total available = $800).
– Day 3: remaining $200 available.
2. Large-deposit holds
– When used: If total deposits to an account on a given business day exceed $5,000.
– Timing rules:
– The first and second business day availability typically follow the statutory hold rules (first $200 next day, then $600 on day 2).
– By the third business day, the bank must make $4,800 available.
– Any remaining portion of the deposit must be made available by the seventh business day after deposit.
– Example: Deposit $6,000 in one day:
– Day 1: $200 available.
– Day 2: additional $600 available (total available = $800).
– Day 3: $4,800 becomes available (total available = $5,600).
– Day 7: remaining $400 available.
3. New-account holds
– When used: On deposits to accounts that are new (generally accounts opened fewer than 30 days prior).
– Timing rules:
– The hold may remain in effect for a longer period; per the referenced rules, such holds may be lifted by the ninth business day after the deposit (i.e., funds must be available no later than that time).
4. Exception holds
– When used: For situations posing elevated risk or specific operational reasons, including:
– The account has been frequently overdrawn (e.g., overdrawn six or more business days in the prior six months, or two or more business days with large overdrafts in some cases).
– The bank reasonably believes the deposited check is uncollectible, fraudulent, or previously returned for insufficient funds.
– Temporary problems (system failures, branch power outages) that justify additional time.
– Timing rules:
– Exception holds generally must end and funds be made available by the seventh business day after deposit (unless another specific rule applies).
Special-case: Insurance checks
– If you deposit an insurance company check, availability timelines depend on whether the drawee (the bank on which the check is drawn) is in-state or out-of-state:
– In-state insurance checks: funds must be available by the fifth business day after deposit.
– Out-of-state checks: funds must be available by the seventh business day after deposit.
How banks must notify you
– Banks must give customers disclosures describing their funds-availability policies (initial disclosures when the account is opened and a periodic notice of any changes). Ask for the “Funds Availability Policy” or Reg CC disclosure if you’re unsure.
Practical steps for consumers — reduce holds and handle problems
A. Minimize or avoid holds
1. Use electronic payments when possible:
– ACH direct deposit, wire transfers, Zelle, and similar electronic methods typically post faster than paper checks.
2. Deposit checks early in a business day:
– Depositing before the bank’s cutoff time can increase the chance of earlier processing.
3. Deposit at the payee’s bank (if possible):
– If you deposit a check into an account at the same bank that issued the check, availability is often faster.
4. Build a buffer balance:
– Maintain a cushion in your account to cover immediate needs while checks clear.
5. Endorse and prepare deposits correctly:
– Proper endorsements and complete deposit slips reduce processing delays.
6. Ask for cash back (when applicable):
– If you receive a check in person and the payer has cash, taking cash avoids a hold.
B. If you need funds sooner
1. Ask your bank for an exception:
– Banks may, at their discretion, release funds earlier for good reason (proof of a large legitimate deposit source, emergency needs, etc.). It helps to explain the need and provide supporting documents.
2. Use alternate payment methods:
– Request wire transfers, ACH, or a cashier’s/official check from the payer where possible.
C. If you believe a hold is improper or longer than allowed
1. Review your bank’s posted funds-availability policy and the deposit terms you received.
2. Speak with the bank:
– Ask which type of hold was placed, the reason, and the exact date funds will be available. Record the representative’s name, date, and time.
3. Request escalation or a written explanation if the answer is unsatisfactory.
4. If the problem isn’t resolved, file a complaint:
– With the Consumer Financial Protection Bureau (CFPB) online at consumerfinance.gov/complaint/ (or call their number), or file with your state banking regulator. Provide documentation (deposit receipts, bank statements, communications).
Sample script to ask a bank representative
– “I deposited a check on [date] into my account [last four digits]. I was told there would be a hold. Can you tell me: (1) which type of hold this is under Regulation CC, (2) the legal deadline for funds availability, and (3) whether you can release all or part of the funds sooner? May I have that explanation in writing?”
Common consumer questions
– Can a bank hold any deposit indefinitely? No. Regulation CC sets maximum hold periods for the different hold types; banks must follow these maximums and provide required disclosures.
– Can I be charged fees while a deposit is on hold? Overdraft and other fees depend on the account terms and how you manage your balance. Maintaining a buffer and monitoring holds can help avoid overdrafts.
– What if a deposited check later bounces? If a deposited check is returned unpaid, the bank can reverse the credited amount. Keep copies of checks and monitor your account until the deposit clears.
When to escalate
– If the bank refuses to follow its own funds-availability policy or the timelines required under Regulation CC, file a complaint with the CFPB and/or your state banking regulator. Keep documentation of the deposit, disclosures you received, and your communications with the bank.
Conclusion
The EFAA (Regulation CC) protects consumers by limiting how long banks may hold deposited funds and requiring clear disclosures. Knowing the types of holds, typical timelines, and practical steps to avoid or challenge holds helps you get faster access to your money and gives you recourse when holds appear improper.
Sources and further reading
– Investopedia — “Expedited Funds Availability Act (EFAA)” (provided source): https://www.investopedia.com/terms/e/expedited-funds-availability-act.asp
– Federal Reserve — Regulation CC (Funds Availability) resources and text: https://www.federalreserve.gov/supervisionreg/regcc.htm
– Consumer Financial Protection Bureau — file a complaint or get help: https://www.consumerfinance.gov/complaint/
If you’d like, I can:
– Draft a short message you can send to your bank contesting a hold, or
– Review a specific hold notice you received and suggest next steps.