Overview of Regulation CC Subpart B Proposed Changes. February 13, 2019

Transcription

1 Overview of Regulation CC Subpart B Proposed Changes February 13, 2019

2 DISCLAIMER The information contained herein has been prepared for general informational purposes only and is not offered as, and does not constitute legal advice or legal opinions. You should not act or rely on any information contained herein without first seeking the advice of your legal counsel. The comments today are my own and not necessarily those of The Clearing House or the ECCHO membership. While this presentation covers the major points in the Regulation CC Subpart B proposed rule and reopening of existing 2011 proposed rule, certain points have been omitted in the interest of time The Clearing House Payments Company L.L.C. 2

3 Today s Topics Background of Changes Proposed Changes to Regulation CC Subpart B 2018 Proposal 2011 Proposal Summary of Comments Next Steps 2019 The Clearing House Payments Company L.L.C. 3

4 ECCHO ECCHO was established in 1990 to electronify checks, has approximately 3,000 members, and is a business line of The Clearing House Member services include: Rules for private-sector electronic check exchange Advocacy for the check payment system Check education National Check Professional (NCP) certification For more info, The Clearing House was established in 1853 For more info, The Clearing House Payments Company L.L.C. 4

5 Acronyms, Abbreviations & Terms Agencies Federal Reserve Board and CFPB CFPB Consumer Financial Protection Bureau CPI-W - Consumer Price Index for Urban Wage Earners and Clerical Workers ECCHO formerly Electronic Check Clearing House Organization now ECCHO, a business line of The Clearing House EFAA Expedited Funds Availability Act EGRRCPA - Economic Growth, Regulatory Relief, and Consumer Protection Act FRB Federal Reserve Board RDC Remote Deposit Capture Reg CC Regulation CC RFC Request for Comment TCH The Clearing House 2019 The Clearing House Payments Company L.L.C. 5

6 Updating Reg CC Subpart B Subpart B of Reg CC addresses funds availability and related disclosures 2019 The Clearing House Payments Company L.L.C. 6

7 Content of Reg CC Subpart B Subpart B Availability of Funds and Disclosure of Funds Availability Policies Next-day availability [Reserved] Availability schedule Exceptions Payment of interest General disclosure requirements Specific availability policy disclosure Initial disclosures Additional disclosure requirements Miscellaneous Relation to state law Civil liability The Clearing House Payments Company L.L.C. 7

8 Why Update Subpart B? To reflect changes in the environment: Now FRB and CFPB share joint rulemaking authority No more nonlocal checks Inflation updates to minimum amounts Expanding EGRPCPA coverage to certain American territories Funds availability provisions represent a balancing act: The interests of customers to receive funds promptly The interests of depository institutions to minimize risks from making funds available before learning of return of check 2019 The Clearing House Payments Company L.L.C. 8

9 Legislation Behind Potential Subpart B Changes Expedited Funds Availability Act requires FRB/CFPB to reduce by regulation availability time periods to as short a time as possible and equal to the period of time achievable under the improved check clearing system for a receiving depository institution to reasonably expect to learn of the nonpayment of most items for each category of checks. 12 USC 4002(d)(1). EFAA legislative history recommends a quantitative benchmark for the FRB/CFPB to use to determine whether to reduce a hold period: a receiving bank could reasonably expect to learn of the return of two-thirds of the checks in a given category. Conference Report on H.R. 27, House Report , 100th Congress, 1st session, 179 (1987), pp. H The Clearing House Payments Company L.L.C. 9

10 Background on Subpart B Proposal Process March 2011, FRB requested comment on proposed amendments to Reg CC Subpart B along with changes to other Subpart A, C, D In July 2011, the Dodd-Frank Act became effective, providing FRB and CFBP with joint rule-making authority for Reg CC Subpart B FRB did not move forward with Subpart B amendments when publishing July 2018 final amendments to Subparts A, C and D November 20, 2018 FRB and CFPB jointly published proposed rulemaking to Reg CC Subpart B Comment letters were due by February 8, 2019 TCH/ECCHO provided a comment letter 2019 The Clearing House Payments Company L.L.C. 10

11 Unique Proposal This proposal was unique in format, since it addressed old and new proposal items: 1. Contained a new set of proposals 2. Also re-opened the 2011 proposal Requiring a unique style of response TCH/ECCHO comment letter addressed: New proposals from 2018 and 2011 proposal Chart provided original 2011 comments and 2019 comments 2019 comments stated whether they were the same, supplement 2011 comments or replace 2011 comments on each 2011 proposal item 2019 The Clearing House Payments Company L.L.C. 11

12 RDC Deposits Outside the Scope of this Proposal Reg CC reference: N/A. Reg CC does not currently govern RDC deposits. Deposits made by customers via RDC are governed under customer/account/rdc agreements with the depository institution. Proposal: Although the Agencies are aware of various issues (e.g., RDC deposits) not raised in the 2011 proposal, at this time, they are requesting comment only on the issues raised in the 2011 & 2018 proposals. TCH/ECCHO Comment: Experience with RDC deposits reveal significantly different risk profiles, depending on various risk factors. Given the complexity of this issue, request that Agencies not take further action without additional notice and request for comment The Clearing House Payments Company L.L.C. 12

13 Joint Rulemaking Authority & Inflation Adjusted Amounts 2018 Proposal included: Implementing Dodd-Frank Requirement 2019 The Clearing House Payments Company L.L.C. 13

14 Reflect Joint Rulemaking Authority Reg CC reference: 229.1(a) Authority and purpose. Proposal: Reflect that FRB and CFPB have joint rulemaking authority over certain provisions of the EFAA 2019 The Clearing House Payments Company L.L.C. 14

15 Background of Mandated Inflation Adjustment Required to adjust the EFAA dollar amounts for inflation Dodd-Frank reference: Section 1086(f) Added Section 607(f) to the EFAA Provides that the dollar amounts under the EFAA shall be adjusted every five years after December 31, 2011 Adjusted by the annual percentage increase in the CPI-W (Published by Bureau of Labor Statistics) and rounded to nearest multiple of $ The Clearing House Payments Company L.L.C. 15

16 Inflation-Adjusted Amounts Update various amounts referenced in Subpart B to reflect inflation adjustment, as required by the statute Applies inflation adjustment to all dollar amounts (c)(1)(vii) minimum amount (d) cash withdrawal amount (a) new-account amount (b) large-deposit threshold (d) repeatedly overdrawn threshold (a) civil liability amounts for failing to comply with EFAA s requirements Each time the amount is adjusted for inflation, Reg CC Subpart B would be updated to reflect the actual dollar amount prior to each new set of adjustments taking effect 2019 The Clearing House Payments Company L.L.C. 16

17 Inflation Adjustment Process Proposed Reference: Adding new and commentary to implement the CPI-W index calculation method Proposed Timing of Update: (b)(1) April 1, 2020 first set of adjustments (using aggregate percentage change in CPI from 7/2011 to 7/2018) April 1, 2025 second set of adjustments April 1 every fifth year after 2025 Proposed Indexing Procedure: (b) Proposal would use the July CPI-W (released in August) during the applicable inflation measurement period Agencies would not adjust dollar amount if no aggregate percentage increase or aggregate percentage increase does not round to multiple of $ The Clearing House Payments Company L.L.C. 17

18 Example of Inflation Adjustment Calculation First set of adjustments, effective April 1, 2020, using the change in the CPI-W for the adjustment period: July 2011 CPI-W: July 2018 CPI-W: Formula: Adjustment Amount = Aggregate % Change x Existing $ Amount Round Adjustment Amount to Nearest $25 (No change if 0 or Negative) Example: Minimum Amount (229.10(c)(1)(vii)) would be adjusted to $225 Example: Cash Withdrawal Amount (229.12(d)) would be adjusted to $ The Clearing House Payments Company L.L.C. 18

19 TCH/ECCHO Comments on Inflation-Adjusted Amounts Support Agencies proposal to update the dollar amounts throughout Subpart B Support Agencies proposal to not update if there is no aggregate increase, or aggregate percentage increase does not round to multiple of $25 Agencies should publish adjusted dollar amounts within Reg CC at least one year prior to the date the adjustments will take effect 2019 The Clearing House Payments Company L.L.C. 19

20 Extend EFAA Coverage 2018 Proposal included: Extending Funds Availability, Payment of Interest and Disclosures to Certain American Territories 2019 The Clearing House Payments Company L.L.C. 20

21 Background of Mandated Extension of EFAA Proposal implements the EGRRCPA by extending Reg CC funds availability, payment of interest, and disclosure requirements to financial institutions in: American Samoa The Commonwealth of the Northern Mariana Islands Guam Amends the defined terms state and United States to include these territories in 229.2(ff) and 229.2(jj) Adds these territories to the list of locations that are eligible for one-day extension of the availability schedules under (e) of Reg CC and EFAA TCH/ECCHO Comment: None 2019 The Clearing House Payments Company L.L.C. 21

22 Re-Open 2011 Funds Availability Proposal Accepting Comments with New, Additional or Different Views Based on Updated Input 2019 The Clearing House Payments Company L.L.C. 22

23 Reduce Safe Harbor Holds Reg CC reference: (h) Availability of deposits subject to exceptions Proposal: Safe harbor for the reasonable hold extension for on-us check deposit remains one business day. Safe harbor for the reasonable hold extension for other checks is reduced to two business days. TCH/ECCHO Comment: Oppose the proposal to reduce the safe harbor hold extension for non-on-us checks to two business days. Even with electronic collection, it can take longer than 4 business days to receive a return (which includes time to present the check) Check may have been fraudulently altered to delay the return Recommend a safe harbor of at least a total of five business days (2 days plus 3 additional days) 2019 The Clearing House Payments Company L.L.C. 23

24 Reduce Holds for Non-Proprietary ATM Deposits Reg CC reference: (d) Deposits at nonproprietary ATMs Proposal: As indicated in the EFA Act s legislative history, Congress adopted the five-day maximum hold on nonproprietary ATM deposits to match the five-day maximum hold on a nonlocal check deposit, because the depositary bank did not know the composition of a nonproprietary ATM deposit (that is, whether the deposit consisted of cash, local checks, nonlocal checks, etc.). In the absence of nonlocal checks, however, there is no longer any class of check that is subject to a maximum five-day hold. Reduces maximum hold for nonproprietary ATM deposits from 5 business days to 4 business days TCH/ECCHO Comment: Continue to support the distinction between proprietary and nonproprietary ATMs in Reg CC 2019 The Clearing House Payments Company L.L.C. 24

25 Preclude Extended Hold for Lack of Electronic Exchange Reg CC reference: (e)-4 Reasonable cause to doubt collectability--commentary Proposal: Bank may not invoke reason to doubt collectability exception because the paying bank demands paper presentment No longer an issue with 99+% electronic check presentment TCH/ECCHO Comment: No 2019 comment. (Supported this deletion in 2011 comments) TCH/ECCHO Additional Comment: Recommend that any retired or not otherwise used routing numbers be deleted from Appendix A because fraudsters use these numbers in an effort to delay the collection and return of the item beyond next-day availability required for these routing numbers 2019 The Clearing House Payments Company L.L.C. 25

26 Reflect All Checks are Local in Bank s Availability Policy Reg CC reference: (b)(2) Specific Availability Policy Disclosure Proposal: Eliminate the distinction between local and nonlocal checks in bank s availability policy. TCH/ECCHO Comment: Support the elimination of this requirement because there are no nonlocal checks The Clearing House Payments Company L.L.C. 26

27 Delete (c)(2) Due to Redundancy Reg CC reference: (c)(2) Checks not deposited in person. Proposal: In the absence of nonlocal checks, the checks described (c)(2) are subject to the same rule as the general rule set forth in proposed Section (c)(2) is therefore no longer necessary. TCH/ECCHO Comment: Support the proposal to delete (c)(2) because there are no longer any nonlocal checks The Clearing House Payments Company L.L.C. 27

28 Add Total Amount of Deposit in Notice of Exception Reg CC reference: (g) Notice of Exception Proposal: that notice of exception hold contain the total amount of the deposit, in addition to the amount of the deposit being held TCH/ECCHO Comment: Oppose the requirement that the exception notice contain the total amount of the deposit in addition to the amount of the deposit on hold. This calculation can be technologically complicated when depositors split deposits across accounts, take cash, apply to loans, etc The Clearing House Payments Company L.L.C. 28

29 Amend Case-by-Case Hold to Include Total Deposit Amount Reg CC reference: (c)(2)(i) Notice at time of case-by-case delay Proposal: Amends the case-by-case notice requirement to require that case-by-case notice of delayed availability include the total amount of the deposit. TCH/ECCHO Comment: The final rule should not require inclusion of amount of deposit in the hold notice due to technological complexity when depositors split deposits across accounts, take cash, apply to loans, etc. Additional Comment: Final rule should continue to support banks ability to place hold on a case-by-case basis as some cases need extended hold, such as suspected check kiting. Banks use case-by-case holds and the elimination of this hold option might encourage banks to use maximum regulatory hold periods for all customers 2019 The Clearing House Payments Company L.L.C. 29

30 Add Day Funds Available Verbiage in Exception Notice Reg CC reference: (g) Notice of Exception Proposal: that the notice specify the day the funds will be made available for withdrawal rather than the time period within which the funds will be available TCH/ECCHO Comment: Do not oppose replacing the existing notice language the time period within which with the day the funds will be made available for withdrawal These funds will be available on the 2 nd business day after the day of your deposit 2019 The Clearing House Payments Company L.L.C. 30

31 Provide Clearer Language for Day of Availability Reg CC reference: (b)(1) Reference to Day of Availability Proposal: Requires depositary bank to disclose availability of deposit in relation to the banking day the deposit was received. Depending on bank s availability policy, banks may use terms next business day or describe the business day after receipt using words or numbers. TCH/ECCHO Comment: No 2019 Comment Comment supported general goal of providing notices that are easy for customers to understand but did not support mandating banks to shift to a new approach The Clearing House Payments Company L.L.C. 31

32 Inform Customers about Potential for Returns Reg CC reference: Appendix C Model Availability-Policy Disclosures, Clauses, and Notices; Model Substitute Check-Policy, Disclosures and Notices Proposal: Proposed revised language and format to Model Policy Disclosures, Clauses and Notices regarding a bank s right to charge back a customer s account if a deposited check is returned unpaid. TCH/ECCHO Comment: Support the proposed inclusion of a statement within disclosures that advises the customer that if available funds are withdrawn from a check deposit and the check is later returned unpaid, the bank may charge the check back to the customer s account. Similarly, believe that information should be conveyed to the customer at the time the customer receives notice of a hold. Separately, recommend that the proposal be clarified that banks can provide these model disclosures and notices on paper sizes other than 8.5x11 inches The Clearing House Payments Company L.L.C. 32

33 Provide Electronic Notices and Timing of Notices Reg CC reference: (g)(ii) Timing of Notice (c)(ii) Timing of Notice for Case-by-Case Delay Proposal: if the customer has agreed to accept notices electronically, the depositary bank shall send the notice such that the bank may reasonably expect the customer to receive it no later than the first business day following the day of deposit, or facts become known to the depositary bank, whichever is later TCH/ECCHO Comment: Support the ability of banks to provide electronic notices but are opposed to a requirement that a bank send a notice electronically Banks should have flexibility to send paper or electronic notices Should be an agreement or authorization in place with the customer for electronic notices for each specific type of notice (i.e., an agreement to send credit card statements does not constitute an agreement to send funds availability notices) Timeliness should not be based on when electronic notices are received, as banks can t control when customers will pick up electronic notices/visit or their online banking site 2019 The Clearing House Payments Company L.L.C. 33

34 Additional Comment: Effective Date of Subpart B Changes The 2011 Proposed Rule did not address the effective date of any amendments to Subpart B TCH/ECCHO Comment: The 2018 Proposal provides that the dollar amount inflation adjustments will be effective on April 1 st, starting in 2020, and continuing on April 1 st every five years. Initially, banks should be provided at least a full year to implement any changes to Subpart B. We encourage the Agencies to make the effective date for any other Subpart B amendments on the same date as the effective date of the dollar amount inflation adjustments. Beneficial for banks and customers for all changes to take effect at the same time The Clearing House Payments Company L.L.C. 34

35 Next Steps TCH/ECCHO Comment letter was sent on February 8 th This proposal implements the inflation adjustments Proposed effective date April 1, 2020 Anticipate publishing Final Rule in Q This proposal implements the EGRRCPA extension of EFAA to certain American territories Await effective date in Final Rule Agencies will now review comment letters and consider actions Will come back with final rule May come back with additional proposal(s) Stay Tuned 2019 The Clearing House Payments Company L.L.C. 35

36 Summary of Comments on 2011 Proposal Support deletion of (c)(2) because in the absence of nonlocal checks, the checks described (c)(2) are subject to the same rule as the general rule set forth in proposed Reduces maximum hold for nonproprietary ATM deposits from 5 business days to 4 business days because there are no longer any nonlocal checks. Comment: Support continuing the distinction for non-proprietary ATM deposits. Support no extended hold for lack of electronic exchange agreement--bank may not invoke reason to doubt collectability exception because the paying bank demands paper presentment. Additional Comment: Recommend that any retired or not otherwise used routing numbers be deleted from Appendix A because fraudsters use these numbers Oppose the requirement that the exception notice contain the total amount of the deposit because this calculation can be technologically complicated when depositors split deposits across accounts, take cash, apply to loans, etc. Do not oppose replacing the existing notice language the time period within which with the day the funds will be made available for withdrawal. Support ability/oppose requirement for banks to provide electronic notices to customers. Oppose timing for customer to receive electronic notice no later than the first business day following the day of deposit because receipt of electronic notices is subject to customers logging into or online bank account. Oppose the proposal to reduce the safe harbor hold extension for non-on-us checks to two business days. Even with electronic collection, it can take longer than 4 business days to receive a return (which includes time to present the check). Support clearer language for day of availability on customer notices. Oppose mandating banks to shift to a new approach for describing availability days in either disclosures or notices. Support elimination of the distinction between local and nonlocal checks in bank s availability policy because there are no nonlocal checks. Oppose requirement to provide total deposit amount on case-by-case hold notice because this calculation can be technologically complicated when depositors split deposits across accounts, take cash, apply to loans, etc. Additional Comment: Emphasize need for case-by-case holds. Support improving language in notices to inform customers about potential for returns and that their accounts could be charged and believe that information should be conveyed to the customer at the time of notice of a hold. Recommend that the proposal be clarified so banks can provide these model disclosures and notices on paper sizes other than 8.5x11 inches. Additional Comment: Proposal provides that the dollar amount inflation adjustments will be effective on April 1st, starting in Banks should be provided at least a year to implement changes to Subpart B and have the same effective date for any other changes The Clearing House Payments Company L.L.C. 36

37 Questions? Jenny Johnson, NCP Director, ECCHO The Clearing House The Clearing House Payments Company L.L.C. 37