17.3 Exception Hold Grounds and Reasonable Periods

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Case-by-Case Holds (12 CFR § 229.16(c))

Many depository institutions maintain a general funds availability policy that makes funds available faster than required by federal law (e.g., offering immediate availability or next-business-day availability on all check deposits as a customer service practice). A case-by-case hold allows such an institution to reserve the right to slow down availability to the standard statutory schedule on specific deposits.

Core Rules Governing Case-by-Case Holds

• Initial Policy Disclosure Prerequisite: An institution may place a case-by-case hold only if its initial funds availability disclosure explicitly notifies the customer that the bank generally makes funds available immediately or on the next business day, but reserves the right to delay availability to the second business day following the banking day of deposit on a case-by-case basis.
• Statutory Schedule Limit: A case-by-case hold can never delay availability beyond the standard statutory schedule set forth in § 229.12 (the second business day following the banking day of deposit for local checks).
• Mandatory $275 Next-Day Availability: The institution must always make $275 available on the next business day following deposit under 12 CFR § 229.10(c)(1)(vii). The remaining funds may be held until the second business day.
• Notice Delivery Timing: The hold notice must be delivered to the customer at the time of deposit if the deposit is made in person to an employee. If the deposit is not made in person (e.g., ATM, mail, remote deposit capture) or if the decision to place the hold is made after the customer leaves the counter, the notice must be mailed or delivered no later than the first business day following the banking day of deposit.
• Overdraft Fee Protection: If the bank delivers a case-by-case hold notice after the customer departs the teller window, the bank cannot assess overdraft or non-sufficient funds (NSF) fees on checks or electronic debits that would have cleared had the hold not been placed, provided the items are presented prior to the expiration of the hold (or the bank must refund any fees assessed upon customer notification).

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Statutory Exception Holds (12 CFR § 229.13)

Under 12 CFR § 229.13, financial institutions are permitted to extend funds availability beyond the standard statutory schedule when specific, elevated credit or collection risks are identified. These are known as statutory exception holds.

The "Reasonable Period of Time" Standard and 5-Day Safe Harbor

Under § 229.13(h), when an exception hold is invoked, the bank may delay availability for a "reasonable period of time." The regulation establishes a statutory safe harbor for what constitutes a reasonable extension:

• For local checks, adding up to five business days to the standard second-business-day schedule is deemed reasonable per se.
• This safe harbor results in a presumptively reasonable availability timeframe of seven business days following the banking day of deposit (2 standard business days + 5 exception business days = 7 business days).
• If a bank holds funds beyond seven business days, it bears the legal burden of affirmatively demonstrating that a longer hold is commercially reasonable under extraordinary circumstances.

Detailed Analysis of the Six Statutory Exceptions

1. New Accounts Exception (12 CFR § 229.13(a))

• Definition: An account is classified as a new account during the first 30 calendar days following the date it is opened. An account is not considered new if each customer named on the account has maintained another transaction account at the depositary bank for at least 30 calendar days prior to opening the new account.
• Special Availability Rules for Next-Day Items: Cash deposits, electronic payments, and the first $6,725 of aggregate U.S. Treasury, state/local government, cashier's, certified, and teller's checks deposited in person must be made available on the next business day. The remaining portion of government and official checks exceeding $6,725 may be held until the ninth business day following the banking day of deposit.
• Standard Checks: For other check deposits (personal, corporate, third-party), the bank is not required to comply with standard availability schedules or the five-day safe harbor; the federal rule does not set a specific availability deadline; disclose and apply the bank’s new-account policy and consider other applicable law.
• Exemption from $275 Rule: The statutory $275 initial availability rule does NOT apply to new accounts.

2. Large Deposits Exception (12 CFR § 229.13(b))

• Statutory Threshold: Applies when the aggregate amount of check deposits into one or more accounts held by the same customer on any single banking day exceeds the inflation-indexed threshold of $6,725 (originally $5,000, adjusted periodically for inflation).
• Aggregation Rule: The bank must aggregate all check deposits made by the customer across multiple accounts (e.g., personal checking, business operating) on the same banking day to determine if the $6,725 threshold is breached.
• Split Allocation of Funds:
  • The first $6,725 must be made available under the standard availability schedule: $275 available on the next business day, and the remaining $6,450 available on the second business day.
  • Only the excess amount over $6,725 is subject to the exception hold, which may be delayed for up to five additional business days (available on the seventh business day).

3. Redeposited Items Exception (12 CFR § 229.13(c))

• Scope: Applies to any check that was previously deposited and returned unpaid by the paying institution.
• Strict Prohibitions: An exception hold cannot be placed if the check was returned solely because:
  • A required endorsement was missing, and the check is now properly endorsed; or
  • The check was post-dated, and the check is no longer post-dated at the time of redeposit.

4. Repeated Overdrafts Exception (12 CFR § 229.13(d))

• Quantitative Triggers: An account qualifies as repeatedly overdrawn if, during the preceding six months:
  • The account balance was negative (or would have been negative had checks or electronic debits been paid) on six or more banking days; OR
  • The account balance was negative by $6,725 or more (or would have been negative by that amount) on two or more banking days.
• Duration of Exception Status: Once triggered, the bank may apply exception holds to check deposits into that account for six months following the most recent qualifying overdraft event.
• Loss of $275 Rule: The statutory $275 next-day availability rule does NOT apply to accounts subject to the repeated overdraft exception.