The Expedited Funds Availability Act (EFAA) plays a pivotal role in the banking system by regulating hold periods on deposits made to commercial banks. Enacted by the U.S. Congress in 1987, the EFAA was created to enhance the efficiency and predictability of fund availability, ultimately benefiting consumers by giving them quicker access to their money. It standardizes the manner in which financial institutions manage the timing of when deposited checks become available for withdrawal or use, thereby increasing transparency and customer trust.
Key Takeaways
- The EFAA outlines specific regulations that govern how long banks can hold deposits.
- There are four main types of holds banks can place on deposits: statutory, large deposit, new account, and exception holds.
- Funds from insurance checks drawn on in-state banks must be made available five business days after the deposit.
Why Was the EFAA Created?
Prior to the EFAA's inception, there was little uniformity in how banks managed check deposits, leading to confusion and potential frustration for consumers. Each bank could determine its own hold policies—sometimes resulting in excessively long hold periods that hampered individuals' access to their funds. The EFAA aimed to level the playing field by imposing federal guidelines, making banking services more consumer-oriented and efficient.
The Federal Reserve has adopted the EFAA as Regulation CC, ensuring its principles are upheld across the banking sector.
Types of Deposit Holds
Under the EFAA, banks are permitted to impose several types of holds that dictate when funds from deposited checks are made available. Here's a closer look at the four main categories:
1. Statutory Holds
Statutory holds are the most common type of hold and can be applied to nearly any type of deposit. The availability rules are as follows:
- The first $200 of the deposit is available the next business day.
- The next $600 is available on the second business day.
- The remaining funds are made available by the third business day.
2. Large Deposit Holds
If an individual deposits more than $5,000 in one business day, banks will place a large deposit hold. The funds become available as follows:
- First $200 available the next business day.
- Next $600 available on the second business day.
- On the third business day, $4,800 becomes available, with the remaining funds accessible by the seventh business day.
3. New Account Holds
New account holds apply to accounts that are less than 30 days old. The funds deposited into these accounts will typically become available on the ninth business day after the deposit.
4. Exception Holds
Exception holds are a bit more complex and can apply under several scenarios:
- If a deposit is made to an account that has been frequently overdrawn.
- If the bank has reason to suspect that a recent deposit may not clear (suspected fraud or a bounced check).
- When technical difficulties arise such as power outages or system failures, banks might also implement these holds.
In the case of an exception hold, funds will be made available on the seventh business day after the deposit.
Specific Provisions for Insurance Checks
The EFAA includes specific provisions for insurance checks. Funds from insurance checks drawn on in-state banks must be made available by the fifth business day following the deposit. Conversely, checks drawn from out-of-state banks must be available within seven business days.
Conclusion
The Expedited Funds Availability Act is a critical piece of legislation that has transformed the way banks handle deposited funds. By setting clear expectations on hold periods, the EFAA improves financial transparency and protection for consumers. Understanding the specifics of the hold types can empower customers to make more informed decisions when it comes to depositing checks and managing their bank accounts. If you have questions about your bank’s policies, don’t hesitate to reach out to customer service for clarity on their deposit hold practices.