The Basic Know-How for Fraud and Scam Part II

Compliance with Regulation CC

 

A Guide for Financial Institution

Determining Funds Availability

Regulation CC states when deposits of various types must be made available to your customers, measured in business days following the banking day on which the deposit is made. Business days are defined as Mondays through Fridays except most federal holidays. A banking day is any business day (up to the bank's cut-off hour) when your institution is open for substantially all of its banking activities. All references to the number of days to funds availability in this guide indicate maximum time limits for making funds available; your institution may provide earlier availability of funds if it chooses and may extend the time when funds are available up to periods set by Regulation CC on a case-by-case basis.

The following types of deposits must be made available on the first business day following the banking day of deposit ("next-day availability"):

1. Cash deposited in person to one of your employees.

2. Electronic payments received by your institution for deposit in an account - An electronic payment is considered received (deposited) when your institution has received both payment in collected funds and information on the account and the amount to be credited. (Under other rules, funds for most electronic deposits are made available on the day of deposit.)

3. U.S. Treasury checks deposited in an account held by a payee of the check - Unlike deposit types listed in 4 through 8 below, which pertain to deposits made in person, Treasury checks deposited at an ATM owned by your institution (a "proprietary" ATM) must be accorded next-day availability.

4. U.S. Postal Service money orders deposited in person to one of your employees and into an account held by a payee of the check.

5. Federal Reserve Bank and Federal Home Loan Bank checks deposited in person to one of your employees and into an account held by a payee of the check.

6. State or local government checks deposited in person to one of your employees and into an account held by a payee of the check, if your institution is in the same state as the payor of the check. (Note: If the customer desires next-day availability of funds from these checks, you may require use of a special deposit slip.)

7. Cashier's, certified, or teller's checks deposited in person to one of your employees and into an account held by a payee of the check. (Note: If the customer desires next-day availability of funds from these checks, you may require use of a special deposit slip.)

8. Checks drawn on an account held by your institution ("on-us checks") deposited in person to one of your employees or at on-premises ATMs or night depositories, if the branch or branches involved are in the same state or check-processing region.

9. Deposits that include some checks of types not listed above - The first $100 (or the total amount of the deposit if it is less than $100) of non-"next-day" checks must be made available the next day.

Exceptions: When deposits of types 1, 4, 5, 6, and 7 are not made in person (for example, when they are made at one of your ATMs), the funds must be made available by the second business day. Deposits, cash or check, made at an ATM that you do not own (a "nonproprietary" ATM) must be made available by the fifth business day.

For checks of types not discussed above, funds generally must be made available in accordance with a schedule specified in Regulation CC. That schedule varies depending on whether the check is considered "local" or "nonlocal."

" A check is considered "local" if your institution is located in the same check-processing region as the paying institution. Funds from local checks must be made available by the second business day following the day of deposit.

" A check is considered "nonlocal" if your institution is not located in the same check-processing region as the paying institution. Funds from nonlocal checks must be made available by the fifth business day following the day of deposit.

There are several minor exceptions to the two- and five-day availability rules. They involve, for example, certain checks deposited outside the continental United States and cash withdrawals from certain checks. A detailed explanation can be found in section 229.12 of Regulation CC.

But remember-no matter whether the check is local or nonlocal, the first $100 of a deposit that is not already subject to next-day availability must be made available by the first business day following the day of deposit. This does not apply to deposits at nonproprietary ATMs and to deposits subject to certain exception holds. Further explanation can be found in section 229.13 of Regulation CC.


For certain types of deposits, Regulation CC permits financial institutions to delay, for a "reasonable period of time," the availability of funds. A "reasonable" time period is generally defined as one additional business day (making a total of two business days) for on-us checks, five additional business days (total of seven) for local checks, and six additional business days (total of eleven) for nonlocal checks; your institution may impose longer exception holds, but you may have the burden of proving that they are "reasonable."

If you decide to hold funds beyond the period specified in your institution's general availability policy, you must give the customer a notice at the time of the deposit explaining why the funds are being held and when they will be available. If the deposit is not made in person to an employee of your institution or if you decide to extend the time when deposited funds will be made available after the deposit has been made, you must mail or deliver the notice to the customer not later than the first business day after the banking day on which the deposit is made.

Deposits of cash and electronic payments are not eligible for exception holds. The six types of deposits that are eligible are

" Large deposits (greater than $5,000) - Any amount exceeding $5,000 may be held. Your institution must make the first $5,000 of the deposit available for withdrawal according to your availability policy and the remainder within the "reasonable" time frames discussed above.

" Redeposited checks - May be held unless the check was returned because an endorsement was missing or because the check was postdated. In such a case, if the deficiency has been corrected, the check may not be held as a redeposited check.

" Deposits to accounts that are repeatedly overdrawn - An account may be considered repeatedly overdrawn and items may be held if

1. On six or more banking days during the previous six months the account had a negative balance, or would have had a negative balance had checks and charges been paid, or

2. On two or more banking days during the previous six months the account balance was negative in the amount of $5,000 or more, or would have been had checks and charges been paid.

" Reasonable cause to doubt the collectibility of a check - Doubtful collectibility may exist for postdated checks, checks dated more than six months earlier, and checks that the paying institution has said it will not honor. The general criterion for doubting collectibility is "the existence of facts that would cause a well-grounded belief in the mind of a reasonable person" that the check is uncollectible. The reason for your belief that the check is uncollectible must be included in your notice to the customer.

" Checks deposited during emergency conditions that are beyond the control of your institution - Such checks may be held until conditions permit you to provide availability of the funds. Examples of emergency conditions are natural disasters, communications malfunctions, and other situations that prevent your institution from processing checks as it normally does.

" Deposits into accounts of new customers (open for less than 30 days) - Next-day availability applies only to cash, electronic payments, and the first $5,000 of any other next-day items; the remaining amount from next-day items must be available by the ninth business day. You may choose any availability schedule for deposits of local, nonlocal, and on-us checks into the accounts of these new customers.


For more information, contact the regional office of your federal supervisory agency: Federal Reserve, Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation.

For examples illustrating rules for withdrawals by check, see Applying Funds Availability Rules.

A Guide for Consumers and Businesses

National Bank Anti-Fraud Resource Center Consumer Information

When depositing items other than cash, it is important for consumers to understand the difference between available funds and collected funds.

Under Regulation CC, when an official instrument is deposited into a consumer's bank account, the bank must make those funds available to the consumer on the next business day. It takes approximately ten days for a check to go through the clearing process:

1. The payee deposits the check.

2. The depositary bank sends the check for collection.

3. The check is sent from the depositary bank to the Federal Reserve Bank or clearinghouse and then to the paying bank (Drawee).

4. The check is presented to the paying bank for payment.

5. If the check is good, the paying bank sends payment (collected funds); however, if the check is bad, the paying bank returns the item as unpaid (uncollected funds).

6. If the item is returned as unpaid, the depositary bank then debits the payee's account for the amount of uncollected funds.

Fictitious Correspondence from US Government Agencies

On several occasions, con artists have counterfeited the letterheads of US Government Agencies in an effort to financially scam consumers. The correspondence generally contains forged signatures of agency officials and fictitious telephone numbers. The letters are sent to potential victims via mail, fax, or e-mail.

These scams usually claim that the purported agency is holding payments owed by foreign governments or foreign organizations but that the recipient must first pay a large fee to have the funds released. Should consumers receive such correspondence, they should not respond, because the contact information contained within is generally associated with the con artist.

The OCC has issued the following Alerts, which address this particular situation:

-  Fraudulent E-mails Purportedly from U.S. House of Representatives, Committee on Financial Services - http://www.occ.treas.gov/ftp/alert/2007-12.html

-  Fraudulent Correspondence Attributed to Officials of the Office of the Comptroller of the Currency - http://www.occ.treas.gov/ftp/alert/2006-68.html

-  Fraudulent E-mails Attributed to Officials of the Office of the Comptroller of the Currency - http://www.occ.treas.gov/ftp/alert/2005-12.doc

Rule of Banking Physics/Systems:

A bank draft, a cashier's check or a money order is a worthless piece of paper until it CLEARS from the issuing bank. Due to the 1992 Federal Reserve Regulation CC, the bank MUST make the funds available in 48 hours. But the average bank draft or cashiers check can take 2 weeks to clear, not 2 days.

Points to remember:

-    You are not safe until the bank check is validated by the issuing bank days after you deposit the check into your account.

-   You're not safe when you deposit the check, nor when the bank makes the funds available in your account, only when the check has been validated and cleared up to 2 weeks later.

-   You must wait 2 weeks after depositing a bank draft before you can use the money, even if the bank makes the funds available in your account.

-   Depending on the circumstances and your State's laws, you may be held responsible for the entire amount of the fraudulent check that you cash at the bank or deposit into your account. If your bank credited your account, it can later reverse the funds if the check is found to be fraudulent.

This could be a Check Overpayment/Money Order Scam. It's an example of why you should never accept a check from someone you don't know.

Where to report check fraud

-   If you are the victim of a counterfeit check scam and the check is drawn on a US bank, submit your complaint to FDIC's Special Activities Section, 550 17th St., NW, Room F-4040, Washington, D.C. 20429, or send your information electronically to alert@fdic.gov

-   If you are the victim of a counterfeit check scam and the check is drawn on a Canadian bank, any information you may have should be brought to the attention of the Office of the Superintendent of Financial Institutions Canada, Compliance Division, 121 King Street West, Toronto, Ontario, M5H 3T9, Canada, or send information electronically to alerte@osfi-bsif.gc.ca

Funds availability (very important to know)

The minimum time requires an in-person deposit with a teller. A deposit via a branch ATM or affiliated network typically adds one business day. Banks may release funds sooner than these maximum limits.

-   Cashier's checks: Generally, next business day.

-   Other checks (local to Washington banking district): Second business day after deposit.

-   Other checks (outside region): Fifth business day after deposit.

-   Total daily deposit of more than $5,000: First $5,000 within schedule above; remainder by ninth business day after deposit.

Banking Concerns

Should you have a specific problem with a bank, you will want to contact the regulator(s) responsible for ensuring the safety and soundness of that institution. Following are the different types of institutions and links to their regulators' customer assistance groups.

-   National Banks (OCC & FDIC)
-   Credit Unions (NCUA)
-   State Banks (State Banking Department, FDIC, or Federal Reserve)
-   Thrifts and Trust Companies (OTS)
-   Debt Elimination

The Office of the Comptroller of the Currency ("OCC") continues to see an increasing volume and variety of fictitious debt elimination schemes being perpetrated against financial institutions. These fictitious schemes are not to be confused with debt consolidation or debt workout programs presented by legitimate entities.

The object of legitimate programs is to assist the borrower to repay the debt in a responsible manner. The fictitious schemes claim to be able to "eliminate" or to "cancel" various types of debt from banks and non-banks without a material further amount of payment by the obligor. The fictitious schemes take various forms, including those that:

-   claim to pay out the debt in some way, but don't;

-   transfer the debt to some wealthy benevolent entity, that does not exist or has no financial capacity; or,

-   falsely claim to be able to have the debt declared invalid for the reason that the financial company is not permitted to lend money or the documentation used by the lender is not valid.

The fictitious, fraudulent schemes are being marketed to everybody, not just the wealthy or sophisticated, including borrowers who are current and those approaching foreclosure. The underlying fraudulent claim in all these fictitious schemes is:

a debt can be eliminated or canceled simply by paying someone a small fee relative to the amount of debt to be eliminated.

These schemes are promoted: via the Internet; in seminars throughout the United States; and, directly by persons known to the victim by way of group affiliation, particularly religious and fraternal groups. These fraudulent schemes claim to "eliminate" or to "cancel" various types of debt, including mortgages, credit card balances, student loans, auto loans, and small business loans. All of them are simply designed to take an individual's money, and are just the modern version of the old "up-front-fee" scheme. The schemes charge an up-front fee, or membership fee, that currently ranges from $400 to $7,500.

As a result of using a fraudulent scheme, individuals will lose money, could lose property, will damage their credit rating, and possibly incur additional debt. In addition, a creditor may take legal action against an individual to resolve a fraudulent attempt to eliminate debt. It is also possible for the victim to have identity theft occur by participating in a fraudulent scheme. The perpetrators of these schemes are known to steal identities and create substantial new debts in the victim's name before they are even aware that it has occurred. It is extremely difficult and time-consuming to resolve the issues pertaining to identity theft.

These fraudulent debt elimination and cancellation schemes have no substance in law or finance. In statements and sometimes in the guise of education, the perpetrators of the schemes provide inaccurate or distorted information about applicable laws and real financial operations. The following are examples of inaccurate information the OCC has seen from these schemes:

-   Secret information or laws, known only to a select few, can be used to eliminate debt;

-   Banks and other creditors do not have the authority to lend money, to advance credit, or to charge interest;

-   An individual's debt is a asset of the creditor that the creditor owes to the individual;

-   A debt owed to a bank is the same as a deposit in a bank;

-   Creditors will not pursue debt collection after an individual participates in one of these schemes;

-   The United States Department of Treasury or some other Federal agency establishes a trust account when an individual is born;

-   Arbitration need not meet the terms of the credit agreement;

-   Individuals can create their own arbitration companies that can create and certify arbitration awards that eliminate, cancel or reduce debt;

-   An individual does not have to pay the debt because the contract or note is illegal and may even deserve a compensatory award; and,

-   Results are guaranteed.

There are unlimited variations to these schemes. The basic idea of these schemes, however, is to fool individuals into paying money to have a debt eliminated or cancelled, or to obtain false documents and the instructions on how to submit the false documents to creditors. The following are some variations of the false documents used:

-   A fake arbitration award from an arbitrator not authorized under the debt agreement;

-   A worthless debt instrument issued by some company, group, trust, benevolent society, or wealthy individual, quite often of foreign origin, as a substitute for the creditor's note;

-   A record of a fictitious account or "trust account" supposedly held in an individual's name at the United States Department of the Treasury or other Federal agency;

-   A fictitious U. S. Government debt instrument issued as a substitute for the creditor's note, payable through an agency or by an authorized agency person;

-   A notice, usually voluminous, to the creditor stating that the contract or note is illegal or the creditor does not have authority to "advance credit" and has violated the law; or,

-   The issuance of a false payoff certificate from the original lender, combined with the borrower's authorization for the perpetrator to obtain a new mortgage, using the proceeds to pay the perpetrator's fee. This "new debt" is stated to be a new first lien, but it is really just a second mortgage, thereby increasing the victim's debt and monthly payment requirements.

Any information that you have concerning fraudulent debt elimination or debt cancellation schemes should be brought to the attention of appropriate local or Federal law enforcement personnel.

If the fraudulent scheme is presented via the Internet or e-mail, contact the Internet Crime Complaint Center (IC3). Please go to the IC3 Web site at http://www.ic3.gov and follow the instructions for filing a complaint (IC3 was f/n/a the Internet Fraud Complaint Center- IFCC). Contacts from other sources, such as individual contacts or seminars, should be reported to the local office of the FBI and your local financial fraud law enforcement organization.

If any portion of the offering or subsequent portions of the transaction are processed through the United States Postal System (USPS), the Criminal Investigation Division of the USPS should be contacted. Contact information can be obtained from your local U.S. Post Office.

Any group, individual or company that states that they can eliminate, remove or cancel your debt by having you pay them a relatively small fee, and without you providing sufficient funds to pay off the debt, is perpetrating a fraud. This is commonly known as an "up-front-fee scam."

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