[Federal Register Volume 84, Number 128 (Wednesday, July 3, 2019)]
[Rules and Regulations]
[Pages 31687-31701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-13668]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 84, No. 128 / Wednesday, July 3, 2019 / Rules
and Regulations
[[Page 31687]]
FEDERAL RESERVE SYSTEM
12 CFR Part 229
[Regulation CC; Docket No. R-1637]
RIN 7100-AF 28
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1030
[Docket No. CFPB-2018-0035]
RIN 3170-AA31
Availability of Funds and Collection of Checks (Regulation CC)
AGENCY: Board of Governors of the Federal Reserve System (Board) and
Bureau of Consumer Financial Protection (Bureau).
ACTION: Final rule.
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SUMMARY: The Board and the Bureau (Agencies) are amending Regulation
CC, which implements the Expedited Funds Availability Act (EFA Act), to
implement a statutory requirement in the EFA Act to adjust the dollar
amounts under the EFA Act for inflation. The Agencies are also amending
Regulation CC to incorporate the Economic Growth, Regulatory Relief,
and Consumer Protection Act (EGRRCPA) amendments to the EFA Act, which
include extending coverage to American Samoa, the Commonwealth of the
Northern Mariana Islands, and Guam, and making certain other technical
amendments.
DATES: This rule is effective September 3, 2019, except for the
amendments to 12 CFR 229.1, 229.10, 229.11, 229.12(d), 229.21, and
appendix E to part 229, which are effective July 1, 2020.
FOR FURTHER INFORMATION CONTACT:
Board: Gavin L. Smith, Senior Counsel, (202) 452-3474, Legal
Division, or Ian C.B. Spear, Manager, (202) 452-3959, Division of
Reserve Bank Operations and Payment Systems.
Bureau: Joseph Baressi and Marta Tanenhaus, Senior Counsels, Office
of Regulations, at (202) 435-7700. If you require this document in an
alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
Regulation CC (12 CFR part 229) implements the EFA Act and the
Check Clearing for the 21st Century Act (Check 21 Act). \1\ Subpart B
of Regulation CC implements the requirements set forth in the EFA Act
regarding the availability schedules within which banks \2\ must make
funds available for withdrawal, exceptions to those schedules,
disclosure of funds availability policies, and payment of interest. The
EFA Act and subpart B of Regulation CC contain specified dollar
amounts, including: (1) The minimum amount of deposited funds that
banks must make available for withdrawal by opening of business on the
next day for certain check deposits (``minimum amount''); \3\ (2) the
amount a bank must make available when using the EFA Act's permissive
adjustment to the funds-availability rules for withdrawals by cash or
other means (``cash withdrawal amount''); \4\ (3) the amount of funds
deposited by certain checks in a new account that are subject to next-
day availability (``new-account amount''); \5\ (4) the threshold for
using an exception to the funds-availability schedules if the aggregate
amount of checks on any one banking day exceed the threshold amount
(``large-deposit threshold''); \6\ (5) the threshold for determining
whether an account has been repeatedly overdrawn (``repeatedly
overdrawn threshold''); \7\ and (6) the civil liability amounts for
failing to comply with the EFA Act's requirements.\8\
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\1\ Expedited Funds Availability Act, 12 U.S.C. 4001 et seq.;
Check Clearing for the 21st Century Act, 12 U.S.C. 5001 et seq.
\2\ Section 229.2(e) of Regulation CC defines ``bank'' to
include banks, savings institutions, and credit unions.
\3\ The minimum amount is currently $200. See section 1086(e) of
the Dodd-Frank Act; 12 U.S.C. 4002(a)(2)(D).
\4\ The cash withdrawal amount is currently $400. 12 U.S.C.
4002(b)(3)(B).
\5\ The new-account amount is currently $5,000. 12 U.S.C.
4003(a)(3).
\6\ The large-deposit threshold is currently $5,000. 12 U.S.C.
4003(b)(1).
\7\ The repeatedly overdrawn threshold is currently $5,000. 12
CFR 229.13(d). This dollar amount is not specified in the EFA Act,
but is a result of the authority of the Board and the Bureau under
section 604(b)(3) of the EFA Act (12 U.S.C. 4003(b)(3)) to establish
reasonable exceptions to time limitations for deposit accounts that
have been overdrawn repeatedly. The Board and the Bureau proposed to
use their authority under section 604(b)(3) and also their authority
under section 609(a) (12 U.S.C. 4008(a)), which is discussed below,
to index the repeatedly overdrawn threshold in the same manner as
the other dollar amounts. The Board and the Bureau stated that they
believe that indexing the repeatedly overdrawn threshold would be
consistent with the need identified by Congress to prevent such
dollar amounts from being eroded by inflation. The Board and the
Bureau did not receive comments suggesting that they should treat
the repeatedly overdrawn threshold differently from the other dollar
amounts, and they finalize this aspect of the proposal for the
reasons stated in the proposal.
\8\ The civil liability amounts are currently ``not less than
$100 nor greater than $1,000'' for an individual action and ``not
more than $500,000 or 1 percent of the net worth'' of a depository
institution for a class action. 12 U.S.C. 4010(a).
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The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) made certain amendments to the EFA Act, and these
amendments were effective on July 21, 2011.\9\ Section 609(a) of the
EFA Act,\10\ as amended by section 1086(d) of the Dodd-Frank Act,
provides that the Board and the Director of the Bureau shall jointly
prescribe regulations to carry out the provisions of the EFA Act, to
prevent the circumvention or evasion of such provisions, and to
facilitate compliance with such provisions.
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\9\ Public Law 111-203, sections 1062, 1086, 1100H, 124 Stat.
2081 (2010); 75 FR 57252 (Sept. 20, 2010).
\10\ 12 U.S.C. 4008(a).
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Additionally, section 1086(f) of the Dodd-Frank Act added section
607(f) of the EFA Act, which provides that the dollar amounts under the
EFA Act shall be adjusted every five years after December 31, 2011, by
the annual percentage increase in the Consumer Price Index for Urban
Wage Earners and Clerical Workers (CPI-W), as published by the Bureau
of Labor Statistics, rounded to the nearest multiple of $25.\11\
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\11\ 12 U.S.C. 4006(f).
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Finally, the Economic Growth, Regulatory Relief, and Consumer
Protection Act (EGRRCPA) made amendments to the EFA Act to extend its
application to American Samoa, the Commonwealth of the Northern Mariana
Islands, and Guam.\12\ The effect of these statutory amendments is to
subject banks in American Samoa, the
[[Page 31688]]
Commonwealth of the Northern Mariana Islands, and Guam to the EFA Act's
requirements related to funds availability, payment of interest, and
disclosures. Banks in those territories would be able to avail
themselves of the one-day extension of the availability schedules
permitted by the EFA Act and Sec. 229.12(e) of Regulation CC.
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\12\ Public Law 115-174, section 208 (2018). The amendments that
section 208 of the EGRRCPA made to the EFA Act became effective on
June 23, 2018. See section 208(b) of the EGRRCPA.
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II. Summary of Proposed Rule, Comments Received, and Final Rule
On December 10, 2018, the Agencies published a notice of proposed
rulemaking (proposal) to implement the statutory requirement in the EFA
Act to adjust the dollar amounts under the Act for inflation and to
implement the EGRRCPA amendments to the EFA Act.\13\ The Agencies
received 32 responses to their proposal from a variety of commenters,
including depository institutions, service providers, trade
associations, clearinghouses, consumer organizations, and private
individuals.\14\ Nine commenters explicitly expressed general support
for the proposal, two additional trade association commenters
specifically supported the proposal's calculation methodology and
timeframes, and twelve commenters specifically supported the proposed
one-year effective date. As discussed in more detail below, three
institutions opposed basic tenets of the statutory requirements based
on concerns about loss to institutions due to customer fraud: the first
disagreed altogether with need to make inflationary adjustments for
purposes of funds availability; the second disagreed with adjusting the
statutory dollar amounts every five years; and the third opposed basing
the hold amount on the CPI, stating that individual check amounts are
not reflective of inflation.\15\ Some commenters addressed other
specific aspects of the proposal. As discussed in more detail below,
the Agencies considered all of the comments received and are adopting
the amendments to Regulation CC described below.
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\13\ 83 FR 63431, Dec. 10, 2018. In their December 2018 Federal
Register notice, the Agencies also provided an additional
opportunity for public comment on certain amendments to the funds-
availability provisions in Regulation CC that the Board proposed in
2011. The Agencies are not herein addressing the Board's 2011
proposal or the comments received thereon.
\14\ The Board received 18 comments and the Bureau received 23.
Of the 41 total comments received, nine commenters submitted
identical comment letters to both Agencies.
\15\ Because the statute is clear in its directives to make
inflationary adjustments to dollar amounts under the EFA Act every
five years based on the CPI-W, the Agencies are finalizing the rule
as proposed with regard to these fundamental statutory requirements.
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A. Effective Dates for Inflation Adjustments
The Agencies continue to believe, as stated in the proposal, that
section 607(f) of the EFA Act is reasonably interpreted to provide for
five years to elapse between a given set of adjustments and the next
set of adjustments, with the first set of adjustments occurring
sometime after December 31, 2011. The Agencies believe that Congress
intended to balance its concern about changes being too frequent or
abrupt with the need to prevent the EFA Act's dollar amounts from being
eroded by inflation. As regulators of depository institutions, the
Agencies are likewise familiar with the challenges that institutions
can face if changes to regulatory requirements are too frequent or
abrupt. Congress balanced these concerns by providing that the
adjustments would be effective at five-year intervals; by providing
that the first set of adjustments would not occur until after December
31, 2011, which ensured that at least a full calendar year would elapse
after the Dodd-Frank Act's enactment in mid-2010; and by providing that
the adjustments would be rounded to the nearest multiple of $25.
In their December 2018 proposal, the Agencies stated they expected
to publish the first set of adjustments as a final rule in the first
quarter of 2019, with a proposed effective date of April 1, 2020. The
Agencies further stated they expected to publish the second set of
adjustments in the first quarter of 2024, with an effective date of
April 1, 2025. For each subsequent set of adjustment, the Agencies
proposed an effective date of April 1 of every fifth year after 2025.
The Agencies stated their belief that the proposed effective dates
would provide institutions with sufficient time to make any necessary
disclosure and software changes and the Agencies requested comment on
the proposed effective dates for the adjustments.
Fourteen commenters addressed the amount of time between the
Agencies' publication of a final rule setting forth the inflation
adjustments and the rule's effective date. Of those, twelve commenters
supported the Agencies' proposed one-year interim, one commenter
requested 18 months, and another requested two years. Two of the
commenters that supported the one-year interim recommended that, if the
Agencies do not release the final rule by April 1, 2019, the effective
date should be extended such that it is at least one year after the
release date of the final rule.
For the reasons set forth in the proposal and above, the Agencies
are finalizing as proposed the one-year interim between publication of
the first set of adjustments and the adjustments' effective date.
Because the Agencies are releasing this final rule in June 2019, the
effective date for the final rule is July 1, 2020. Further, the
Agencies anticipate carrying this one-year interim forward for future
adjustments. Specifically, Sec. 229.11(a) of the final rule states
that the relevant EFA Act dollar amounts, as reflected in Regulation
CC, shall be adjusted effective on July 1, 2020, on July 1, 2025, and
on July 1 of every fifth year after 2025. The Agencies anticipate
issuing a rule in the Federal Register setting forth the inflation
adjustments at least one year before the effective date of each ensuing
adjustment. For example, the Agencies anticipate publishing in the
first half of 2024 the second set of inflation adjustments, which will
become effective July 1, 2025.\16\
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\16\ The effective dates are consistent with section 302 of the
Riegle Community Development and Regulatory Improvement Act of 1994
(Pub. L. 103-325, 108 Stat. 2160, 12 U.S.C. 4802). That section
provides that new regulations and amendments to regulations
prescribed by Federal banking agencies, including the Board (but not
the Bureau), that impose additional reporting, disclosures, or other
new requirements on insured depository institutions shall take
effect on the first day of a calendar quarter which begins on or
after the date on which the regulations are published in final form
(with certain exceptions).
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In addition to expressing general support for the timeframes in the
proposal, one commenter specifically stated that the industry will
benefit from having a predetermined schedule for making future updates
to the EFA Act dollar amounts. Two commenters additionally requested
that the Agencies tie the inflation adjustment effective dates to the
effective dates of any other disclosure changes so depository
institutions would not have to make other changes to disclosures in the
interim years.
The Agencies believe that institutions will benefit from having
their implementation of the statutorily-required inflation adjustments
occur on a predetermined five-year cycle and, as noted above, that
section 607(f) of the EFA Act is reasonably interpreted to provide for
five years to elapse between a given set of adjustments and the next
set of adjustments. Thus, the Agencies are finalizing the rule as
proposed with the five-year cycle between inflation adjustments.
Nonetheless, as stated above, the Agencies are cognizant of the
potential burden on institutions if
[[Page 31689]]
regulatory changes are too frequent or abrupt. Accordingly, the
Agencies recognize the benefit of making efforts, if appropriate and
feasible, to coordinate the effective dates of future rulemakings
effecting changes to disclosures required by the funds-availability
provisions in Regulation CC subpart B with the predetermined effective
dates for the inflation adjustments to the dollar amounts in Regulation
CC subpart B that are set forth herein.
B. Methodology for Inflation Adjustments
1. Measurement of Underlying Inflation
EFA Act section 607(f) does not specify which month's CPI-W should
be used to measure inflation. The Agencies proposed to use the July
CPI-W, which is released by the Bureau of Labor Statistics in August.
The Agencies proposed to use the aggregate percentage change in the
CPI-W from July 2011 to July 2018 as the initial inflation measurement
period for the first set of adjustments. The Agencies proposed that the
second set of adjustments would be based on the aggregate percentage
change in the CPI-W for an inflation measurement period that begins in
July 2018 and ends in July 2023. And, the Agencies proposed that each
subsequent set of adjustments would be based on the aggregate
percentage change in the CPI-W for an inflation measurement period that
begins in July of every fifth year after 2018 and ends in July of every
fifth year after 2023. The Agencies stated in their proposal that this
use of July CPI-W, starting with the July 2011 CPI-W, aligns with
section 607(f)'s effective date of July 21, 2011. The Agencies
specifically requested comment on this approach.
Most commenters that addressed the issue supported the Agencies'
proposed inflation calculation methodology. However, one commenter
recommended that the Agencies base the calculation of inflation on the
change in the CPI-W from July 2013 to July 2018 on the grounds that it
would result in a lower aggregate percentage change for the first set
of adjustments. The Agencies are finalizing the rule as proposed with
the first set of inflation adjustments--published herein and effective
July 1, 2020--based on inflation, as measured by the CPI-W, from July
2011 to July 2018. As discussed in the proposal, the Agencies continue
to believe it is appropriate for the inflation adjustments to be based
on underlying inflation since the effective date of the relevant Dodd-
Frank Act provisions, which is July 21, 2011. The Agencies do not
believe that the need identified by Congress to prevent the relevant
dollar amounts from being eroded by inflation would be served by
omitting the period of July 2011 to July 2013 from the Agencies'
calculation, as the commenter advocated. The second set of inflation
adjustments--which the Agencies anticipate publishing in the first half
of 2024 and which will be effective July 1, 2025--will be based on
underlying inflation from July 2018 through July 2023. The third set of
adjustments--which the Agencies anticipate publishing in the first half
of 2029 and which will be effective July 1, 2030--will be based on
inflation from July 2023 through July 2028.
2. Aggregate Percentage Increase
Section 607(f) of the EFA Act provides that the adjustments must be
based on the ``annual percentage increase'' in the CPI-W, but does not
specify how the adjustment must be made in the event that the CPI-W is
negative for one or more years in the inflation measurement period. The
Agencies maintain their position from the proposal \17\ that it is a
reasonable interpretation of section 607(f) to account for negative
movements in the CPI-W on a year-to-year basis and to include those
movements when measuring the underlying inflation that is the basis for
calculating adjustments to the dollar amounts in subpart B of
Regulation CC. Of the few commenters that addressed this issue, most
supported the Agencies' proposed approach, and the Agencies are
adopting it in the final rule.
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\17\ See 83 FR 63431 at 63433, Dec. 10, 2018.
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Further, the Agencies proposed an approach under which the five-
year adjustments to the dollar amounts in Regulation CC subpart B would
always be zero or upward, never downward. Specifically, the Agencies
proposed that if there is no aggregate percentage increase (zero
increase) in the CPI-W or an aggregate percentage decrease (negative
increase) in the CPI-W during the five-year inflation measurement
period, then there would be no downward adjustments to the dollar
amounts in Regulation CC subpart B.
One depository institution commented that the proposed approach
could cause funds-availability risks to institutions under certain
economic scenarios of sustained deflation (negative inflation). Another
institution characterized the Agencies' proposed approach as being
somewhat arbitrary but generally agreed that the aggregate change would
most likely be zero or positive. Conversely, a consumer organization
explicitly agreed with the proposed approach and stated that negative
inflation should not result in decreased funds availability to
consumers.
Under the Agencies' final rule, as proposed, the adjustments to the
dollar amounts in Regulation CC subpart B will always be zero or
upward, never downward. The Agencies continue to believe this approach
is a reasonable interpretation of the phrase ``annual percentage
increase'' in EFA Act section 607(f), in that reading out the word
``increase'' from the statute would not be consistent with the
statutory scheme. Further, as noted in their proposal,\18\ the Agencies
reiterate that, since 1939, no aggregate change in the CPI-W across a
five-year period has been negative. Nonetheless, if it were to become
necessary and appropriate in the future, the Agencies could consider
steps to address the funds-availability risks to institutions that
could be associated with a sustained--i.e., more-than-five-year--period
of deflation, if any such period of deflation were ever to actually
occur.
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\18\ See 83 FR 63431 at 63433 footnote 14, Dec. 10, 2018.
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3. Rounding to the Nearest Multiple of $25
EFA Act section 607(f) states that the dollar amounts under the Act
shall be adjusted every five years for inflation, as measured by the
CPI-W, ``rounded to the nearest multiple of $25.'' In keeping with that
statutory directive, the Agencies proposed that, if there is an
aggregate percentage increase in any five-year inflation measurement
period, then the aggregate percentage change would be applied to the
dollar amounts in Regulation CC, and those amounts would be rounded to
the nearest multiple of $25 to determine the new adjusted dollar
amounts that appear in the regulation.\19\
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\19\ For example, if the CPI-W in July of Year X and in July of
Year X + 5 were 100 and 114.7, respectively, the aggregate
percentage change that results from the change in the CPI-W would be
14.7%. If the applicable dollar amount in the regulation was $200
for the prior period, then the adjusted figure in the regulation
would become $225, because the calculated change of 14.7 percent of
$200, which is $29.40, results in rounding to $225 as that would be
the nearest multiple of $25.
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Two depository institutions and two trade associations recommended
rounding to a different value than $25, including rounding to the
nearest $100 or to the nearest place value or setting the minimum
amount at $300, on the grounds of reducing institutions' costs by
reducing the frequency of the inflation adjustments and reducing
consumer confusion. The Agencies
[[Page 31690]]
believe that this suggested approach would be inconsistent with the
language of section 607(f) of the EFA Act that expressly refers to
``rounded to the nearest multiple of $25.'' Accordingly, the Agencies
are adopting a final rule under which the adjusted dollar amounts in
the regulation are rounded to the nearest multiple of $25.
4. Notice and Comment
One depository institution suggested that the Agencies allow for
public comment each time the Agencies adjust the dollar amounts in the
regulation for inflation. The commenter stated that this approach would
allow institutions and the Agencies to consider whether the adjustments
continue to be cost effective and to ensure that the adjustments
benefit consumers enough to justify the additional costs to
institutions.
Congress has required the Agencies to adjust dollar amounts under
the EFA Act for inflation. If, as the commenter suggests, the Agencies
were to obtain public comment in advance of future five-year inflation
adjustments, those comments could not serve as a legal basis for the
Agencies to override the fundamental statutory requirement to
effectuate inflation adjustments. In addition, the Agencies are herein
adopting the methodology for the calculations underlying the
statutorily-required inflation adjustments, including future five-year
adjustments, and the Agencies have adopted that methodology through
notice-and-comment rulemaking. Accordingly, and as stated in the
Agencies' proposal,\20\ with respect to future inflation adjustments
for subsequent five-year periods, the Agencies continue to expect to
find that notice and opportunity for public comment for the adjustments
is impracticable, unnecessary, or contrary to the public interest,
because the calculation methodology for the adjustments is set forth
herein and future execution of the adjustments will be technical and
non-discretionary. See 5 U.S.C. 553(b)(B). For example, the Agencies
have determined in the final rule set forth herein that the second set
of inflation adjustments to the dollar amounts in Regulation CC will be
based on inflation as measured by the CPI-W from July 2018 through July
2023. As noted above, the Agencies anticipate publishing those
adjustments in the Federal Register in the first half of 2024, to be
effective July 1, 2025, so that institutions will have sufficient time
to implement the inflation adjustments. Further, the Agencies are
always open to feedback about how their rules could be improved, and
they take appropriate steps in response to such feedback.
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\20\ See 83 FR 63431 at 63433 footnote 17, Dec. 10, 2018.
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C. Burden on Institutions From Implementing the Inflation Adjustments
Many commenters, including credit unions and credit union trade
associations, expressed concern regarding the burden imposed on
institutions to implement the inflation adjustments. Several credit
union commenters stated that the cost burden imposed on institutions to
implement the inflation indexing could exceed the Agencies' estimate in
the proposal, noting in particular the printing and distribution costs
associated with sending notices to customers of the changes in the
institutions' funds-availability policies (commonly referred to as
``change-in-terms'' notices). \21\ One credit union commenter
summarized this position by stating that the Agencies' cost estimate
constitutes a ``basic approximation'' that left out other potential
costs, including communication with members before each change. This
section discusses commenter concerns and suggestions regarding the
burden imposed by the inflation indexing. Those concerns are also
discussed below in the Agencies' analyses pursuant to the Regulatory
Flexibility Act, the Board's analysis pursuant to the Paperwork
Reduction Act, and the Bureau's analysis pursuant to section 1022 of
the Dodd-Frank Act.
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\21\ Regulation CC Sec. 229.18(e) requires a depository
institution to send customers a written notice regarding a change to
the bank's funds-availability policy. The changes to the
availability policies to reflect the statutorily-required inflation
adjustments, as implemented by this final rule, would trigger the
requirement to send a change-in-terms notice.
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1. Notices to Customers of Changes to Institutions' Funds-Availability
Policies
As noted above, commenters expressed concern regarding the burden
associated with the requirement to send customers a change-in-terms
notice reflecting the inflation-adjusted Regulation CC funds-
availability amounts. One commenter specifically voiced concern about
the disproportionate cost impact on smaller credit unions for printing
and mailing notices in general and, in specific, the change-in-terms
notice. To reduce that burden, the commenter also urged the Agencies to
reduce the length of the required funds-availability disclosures or
permit them to accompany monthly account statements. Another commenter
suggested reducing burden by establishing an exception within the
Regulation CC provision, Sec. 229.18(e), that requires the change-in-
terms notice. Specifically, the commenter suggested that an institution
not be required to provide a change-in-terms notice when its funds-
availability policy changes due to the periodic inflation adjustments
to the Regulation CC funds-availability dollar amounts that are
mandated by section 607(f) of the EFA Act.
The Regulation CC change-in-terms provision (Sec. 229.18(e))
mirrors the statutory change-in-terms provision, which is set forth in
EFA Act section 605(c)(2). That statutory provision requires an
institution to send a written notice to consumer account holders at
least 30 days before implementing a change to the institution's funds-
availability policy and further states that ``any change which
expedites the availability of such funds shall be disclosed not later
than 30 days after implementation.'' See EFA Act section 605(c)(2) (12
U.S.C. 4004(c)(2)).
In their final rule, the Agencies decline to establish in
Regulation CC an exception to the requirement to send a change-in-terms
notice, as this requirement is established by statute. However, the
Agencies note several ways that depository institutions may lower their
costs under the rule, including providing the required notice
electronically and sending it with the monthly account statement, as
follows.
Electronic delivery is permitted where the institution has complied
with the requirements of the Electronic Signatures in Global and
National Commerce Act (15 U.S.C. 7001 et seq. (``E-Sign Act'')). See
comment 229.15(a)-1. Further, the regulation already permits an
institution to send a required change-in-terms notice on or with a
monthly account statement, and this is so irrespective of whether the
institution sends the notice and statement electronically or in paper
form. See comment 229.18(e)-1 (stating that the change-in-terms notice
required by Sec. 229.18(e) ``may be given in any form as long as it is
clear and conspicuous''). In addition, an institution need not set
forth the entirety of its revised funds-availability policy in its
change-in-terms notice. If an institution chooses to provide the notice
by sending a complete new availability disclosure, the institution must
direct the customer to the changed terms in the disclosure by use of a
letter or insert, or by highlighting the changed terms in the
disclosure. See comment 229.18(e)-1. And finally, as discussed above,
the Agencies anticipate providing one year between the date of
publication in the Federal Register of the inflation-adjusted amounts
and the
[[Page 31691]]
date on which the adjusted amounts become effective. The Agencies
believe that this one-year timeframe provides institutions with a
sufficient interim in which to plan to send their change-in-terms
notices in a way that minimizes the burden associated with doing so. In
light of all of these factors, and given that the inflation adjustments
are statutorily required and will occur only once every five years, the
Agencies do not believe that the burden concerns raised warrant any
modification to the requirement to send change-in-terms notices.
2. Minimum Availability Amounts Required by the Regulation
To obviate the need to send a change-in-terms notice to consumers
every five years when the dollar amounts in Regulation CC are adjusted
for inflation, one depository institution commented that the regulation
should permit institutions to provide to customers a funds-availability
policy disclosure that includes a phrase such as ``minimum amount
required by regulation,'' rather than setting forth an actual dollar
figure that potentially (if inflation is sufficient) must be updated
every five years. The Agencies decline to adopt this approach because
they believe it would result in consumer confusion. Specifically, the
Agencies believe that one of the purposes of the statute, that
consumers be informed of the specific amount of deposits available to
them under an institution's funds-availability policy, would be
foreclosed under the commenter's suggested approach.
3. Overall Opposition to the Inflation Adjustments
Three commenters opposed making inflation adjustments altogether.
One commenter disagreed with adjusting the statutory dollar amounts
every five years, because it opens institutions up to increased losses
from fraud. Another stated that it does not make sense to base the
funds-availability hold amounts on the CPI-W, because individual check
amounts are not reflective of inflation. And, another stated that
making higher dollar amounts available would end up imposing costs on
consumers, because institutions would inevitably pass on to consumers
their higher costs from fraud losses that would result from the higher
funds-availability amounts.
While the Agencies are cognizant of the burden regulations place on
institutions, the inflation adjustments to the dollar amounts under the
EFA Act are required by statute. The Agencies understand that Congress,
in providing for a five-year cycle between inflation adjustments,
intended to balance concerns regarding burden with the need to prevent
the EFA Act's dollar amounts from being eroded by inflation.\22\
Congress also specified that the CPI-W should be used.
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\22\ Consistent with this view, the EFA Act's legislative
history shows that one intent of the Act was to ``provide a fairer
balance between the banks' interest in avoiding fraud and consumers'
interests in having speedy access to their funds.'' S. Rep. No. 100-
19, at 28 (1987); see also H.R. Rep. No. 100-52, at 14 (1987)
(describing the efforts ``to protect depository institutions while
furthering the original goals of the legislation to provide shorter
time periods for funds availability.'')
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D. Regulation CC Changes To Implement the EGRRCPA Amendments to the EFA
Act
Two commenters supported the Agencies' proposed changes to
Regulation CC to implement the EGRRCPA amendments to the EFA Act that
extended its application to American Samoa, the Commonwealth of the
Northern Mariana Islands, and Guam. The proposed changes included
updating the definitions of ``state'' and ``United States'' in
Regulation CC to include these territories as well as other conforming
amendments. No commenters opposed the proposed changes. In their final
rule, the Agencies adopt these changes as proposed.
E. Technical Amendments to Appendix A of Regulation DD
The Bureau proposed a technical, non-substantive amendment to its
Regulation DD, 12 CFR part 1030, to add a new paragraph (e) to Sec.
1030.1 that would cross-reference the Bureau's joint authority with the
Board to issue regulations under certain provisions of the EFA Act that
are codified within Regulation CC. The Bureau also proposed related
technical, non-substantive amendments to Sec. 1030.7(c), and the
commentary thereto, which states that interest shall begin to accrue
not later than the business day specified for interest-bearing accounts
in the EFA Act and Regulation CC. In addition, the Bureau proposed to
fix technical errors in Appendix A to Regulation DD within the formulas
that demonstrate how to calculate annual percentage yield (APY) and
annual percentage yield earned (APYE). Specifically, certain terms
within the formulas should be shown as exponents but currently are
erroneously not shown as exponents. These typographical errors were
inadvertently introduced into the APY and APYE formulas in Appendix A
when the Bureau issued its restatement of Regulation DD in December
2011.\23\
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\23\ 76 FR 79276 (Dec. 21, 2011).
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The Bureau received one comment regarding its proposed correction
of technical errors in Appendix A to Regulation DD, recommending that
the Bureau consult with the National Credit Union Association (NCUA) to
determine whether it is necessary to amend Appendix A within credit
unions' equivalent regulation under the Truth in Savings Act (TISA),
specifically, Appendix A to 12 CFR part 707. The technical errors that
are present in Appendix A to Regulation DD are not present in Appendix
A to 12 CFR part 707. Thus, the Bureau has no reason to believe it is
necessary for the NCUA to amend Appendix A to 12 CFR part 707. In
addition, as described below, the Bureau has performed interagency
consultations regarding this final rule, including with the NCUA.
The Bureau is adopting as proposed the above-described technical,
non-substantive amendments to Regulation DD and Appendix A thereto.
III. Legal Authority
In issuing the final rule, the Agencies are exercising their
authority under section 609(a) of the EFA Act (12 U.S.C. 4008(a)) to
amend subpart B and, in connection therewith, subpart A, of Regulation
CC to prescribe regulations to carry out the provisions of the EFA Act,
to prevent the circumvention or evasion of such provisions, and to
facilitate compliance with such provisions.\24\ Additionally, with
respect to the technical amendments to Regulation DD, the Bureau is
exercising its authority under section 269(a) of TISA (12 U.S.C.
4308(a)) to prescribe regulations to carry out the purpose and
provisions of TISA.
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\24\ Additionally, section 604(b)(3) of the EFA Act (12 U.S.C.
4003(b)(3)) authorizes the Agencies to establish reasonable
exceptions to time limitations for deposit accounts that have been
overdrawn repeatedly. As noted above, the Agencies also rely on this
authority in adjusting the repeatedly overdrawn threshold in 12 CFR
229.13(d).
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IV. Administrative Law Matters
A. Bureau's Dodd-Frank Act Section 1022(b)(2)(A) Analysis
1. Overview
Section 1022(b)(2)(A) of the Dodd-Frank Act provides that in
prescribing a rule under the Federal consumer financial laws, the
Bureau shall consider the potential benefits and costs to consumers and
covered persons, including the potential reduction of access by
consumers to consumer financial products or services resulting from
such rule; the impact on depository institutions and credit unions with
$10 billion or less in total
[[Page 31692]]
assets as described in section 1026 of the Dodd-Frank Act; and the
impact on consumers in rural areas.\25\ The Bureau requested comment on
the preliminary analysis as well as the submission of additional data
that could inform the Bureau's analysis of the benefits, costs, and
impacts of the rule. The Bureau received four comments on the
preliminary analysis, which it has considered in developing this final
analysis.
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\25\ 12 U.S.C. 5512(b)(2)(A). Although the manner and extent to
which section 1022(b)(2)(A) applies to a joint Bureau and Board
rulemaking under the EFA Act is unclear, to inform this rulemaking
more fully the Bureau performed the described analysis.
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This analysis considers the benefits, costs, and impacts of this
final rule using a pre-statutory baseline. That is, the Bureau's
analysis below considers the benefits, costs, and impacts of the
relevant provisions of the EGRRCPA combined with this final rule
relative to the regulatory regime that pre-dates the EGRRCPA.\26\
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\26\ The Bureau has discretion in future rulemakings to choose
the most appropriate baseline for that particular rulemaking. Also
note that the Bureau's analysis excludes the Board's final
amendments to subpart C of Regulation CC. Additionally, the Bureau's
amendments to Regulation DD are technical and non-substantive and so
do not affect the benefits, costs, or impacts of the final rule.
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2. Potential Benefits and Costs to Consumers and Covered Persons
This final rule adjusts for inflation the funds that must be
available as required by the EFA Act and Regulation CC. Moreover,
depository institutions located in American Samoa, the Northern Mariana
Islands, and Guam will now be required to comply with the provisions in
the EFA Act and subpart B of Regulation CC related to funds
availability, payment of interest, and disclosures to their customers.
The final rule keeps the expected losses to depository institutions
constant in real terms by adjusting for inflation the funds that must
be available. Thus, the Bureau does not expect any potential benefits,
costs, or impacts to consumers or covered persons as a result of the
adjustment methodology, other than the paperwork costs discussed below.
The adjustments and methodology in this rule are technical, and they
merely apply the statutory method for adjusting amounts that must be
available to consumers.
The Bureau estimates that covered persons will face an average
paperwork cost of approximately $2,241 every five years to update
notices already sent to consumers.\27\ Specifically, the Bureau
estimates that compliance will require 60 hours every five years. The
Bureau further assumes an average hourly wage of $37.35, as explained
below.
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\27\ In the proposed 1022(b)(2) analysis, the Bureau stated that
covered persons would face an average paperwork cost of $398.04
every five years. The Bureau received comments that the total and
the assumed number of hours were too low. To be consistent with the
PRA analysis, the Bureau should have stated that covered persons
would face an average paperwork cost of $398.04 every year, which
would be $1,990.20 every five years.
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In the proposed 1022(b)(2) analysis, the Bureau used the average
hourly wage rate for compliance officers of $33.17. The revised average
hourly wage rate reflects two adjustments. First, the Bureau is using
figures reported in the Occupational Employment Statistics for May 2018
instead of May 2016. Second, two commenters observed that
implementation requires staff besides compliance officers to make
system updates and that technical staff might have a higher average
hourly wage. The Bureau does not have representative data on the
combinations of staff that would be used in recurring system changes of
the type required by this rule. The Bureau agrees, however, that the
prior estimate likely underestimated the average hourly cost. The
second adjustment takes some account of differences in staff and costs
to mitigate any underestimation.\28\
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\28\ See Bureau of Labor Statistics, National Occupational
Employment and Wage Estimates (May 2018), available at https://www.bls.gov/oes/current/oes_nat.htm. The average hourly wage is a
weighted average of 40% of the average annual wage for compliance
officers ($34.86), 40% for operations staff ($36.98), and 20% for
computer programmers ($43.07). In addition, one commenter said that
the wage should take into account benefits as well as salary. Given
that the required changes occur just once every five years, the
Bureau expects that there would be large differences across
institutions in use of contractors and salaried employees. The
Bureau does not have the data required to take these differences
into account.
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Two commenters stated that the rule would trigger the regulation's
requirement to provide a change-in-terms notice and that this would
create costs for printing and mailing. However, the change-in-terms
notice can be provided on the monthly account statement (the notice can
also be provided electronically if the institution has the consumer's
E-Sign consent). The Bureau therefore does not agree that the rule
would necessitate an increase in printing and mailing costs.
Additionally, the EGRRCPA made amendments to the EFA Act to extend
its application to American Samoa, the Commonwealth of the Northern
Mariana Islands, and Guam.\29\ The final rule implements the EGRRCPA by
extending the application of Regulation CC's requirements related to
funds availability, payment of interest, and disclosures to
institutions in American Samoa, the Commonwealth of the Northern
Mariana Islands, and Guam. Consumers of depository institutions in
American Samoa, Guam, and the Northern Mariana Islands will generally
receive the same benefits of consumers of institutions already
complying with subpart B of Regulation CC. This includes policies and
other disclosures regarding funds availability and timely access to
their funds. Consumers will generally not experience any costs
associated with changes to existing policies or with receiving these
disclosures.
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\29\ Public Law 115-174, section 208 (2018).
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Based on regulatory filings, the Bureau has identified five
institutions headquartered in American Samoa, the Commonwealth of the
Northern Mariana Islands, and Guam that are newly subject to Regulation
CC as a result of the amendments made to the EFA Act by the EGRRCPA,
and that may therefore face compliance costs associated with this final
rule. Although these institutions will incur costs to comply with the
requirements of Regulation CC, the Bureau does not have data on the
impact of the requirements of this final rule on these institutions.
The Bureau specifically requested information from commenters on the
costs of complying with Regulation CC for institutions in American
Samoa, the Commonwealth of the Northern Mariana Islands, and Guam and
on those institutions' pre-statutory practices regarding funds
availability. No comments provided data or other information in
response to this request.
3. Impact on Depository Institutions With No More Than $10 Billion in
Assets
The final rule's inflation adjustments and changes to disclosures
will impact all depository institutions, including those with no more
than $10 billion in assets. The Bureau expects that all depository
institutions will experience an average cost of approximately $2,241 to
update quinquennial notices.
The EGRRCPA amended the EFA Act to extend its application to
institutions in American Samoa, the Commonwealth of the Northern
Mariana Islands, and Guam. The Bureau identified five institutions that
are now required to comply with Regulation CC, and all have no more
than $10 billion in assets. The Bureau requested information from
commenters on the total cost that would be experienced by these
depository institutions to comply with Regulation CC. No comments
provided data or other information in response to this request.
[[Page 31693]]
4. Impact on Access to Credit
The Bureau does not expect the final rule to affect consumers'
access to credit. The scope of this rulemaking is limited to funds
availability in depository accounts and is not directly related to
credit access.
5. Impact on Rural Areas
The Bureau does not believe that the final rule will have a unique
impact on consumers in rural areas.
B. Regulatory Flexibility Act
Board: The Regulatory Flexibility Act (RFA) requires an agency to
publish a final regulatory flexibility analysis with a final rule or
certify that the rule will not have a significant economic impact on a
substantial number of small entities. Based on its analysis, and for
the reasons stated below, the Board believes that the rule will not
have a significant economic impact on a substantial number of small
entities. Nevertheless, the Board is publishing a final regulatory
flexibility analysis.
1. Statement of the need for, and objectives of, the proposed rule.
The final rule memorializes the calculation method used to adjust the
EFA Act dollar amounts every five years in accordance with section
607(f) of the EFA Act, as amended by section 1086(f) of the Dodd-Frank
Act. The final rule also implements the statutory amendments to the EFA
Act to extend its application to American Samoa, the Commonwealth of
the Northern Mariana Islands, and Guam.
2. Small entities affected by the proposed rule. The final rule
applies to all depository institutions regardless of their size.
Pursuant to regulations issued by the Small Business Administration (13
CFR 121.201), a ``small banking organization'' includes a depository
institution with $550 million or less in total assets. Based on call
report data, there are approximately 9,460 depository institutions that
have total domestic assets of $550 million or less and thus are
considered small entities for purposes of the RFA. All institutions
will be required to update existing disclosures to their customers with
any adjustments in the dollar amounts and update their software to
adjust the availability amounts where necessary. As discussed above,
while some commenters suggested the cost burden on institutions
implementing the inflation indexing could be greater than the proposal
estimated, the Board does not believe the final rule will have a
significant economic impact on the entities that it affects.
Specifically, the extent of impact on small entities may depend on the
contents of the institution's funds availability policy and the
frequency of the institution's regularly scheduled re-prints of its
availability policy disclosures. Small depository institutions that
already make funds available the next day and do not utilize the
exceptions for new accounts, large deposits, or repeated overdrafts may
be less affected by the final rule. The economic impact on small
entities from the final rule may include technology, labor, and other
associated costs incurred to update their disclosures with the adjusted
dollar amounts, if those cannot be accomplished within the
institution's regular cycle. However, as noted above, the Agencies
anticipate providing one year between the date of publication in the
Federal Register of the inflation-adjusted amounts and the date on
which the adjusted amounts become effective. The Agencies believe that
this one-year timeframe provides institutions with a sufficient interim
in which to plan to send their change-in-terms notices in a way that
minimizes the burden associated with doing so. In addition, depository
institutions located in American Samoa, the Northern Mariana Islands,
and Guam will now be required to comply with the provisions in the EFA
Act and Regulation CC related to funds availability, payment of
interest, and disclosures to their customers.
3. Recordkeeping, reporting, and compliance requirements. The final
rule requires institutions to update their existing EFA Act disclosures
to their customers with the adjusted dollar amount as well as update
software that determines availability, as applicable. No other
additional recordkeeping, reporting, or compliance requirements would
be required by the proposed rule.
4. Other Federal rules. The Board has not identified any likely
duplication, overlap and/or potential conflict between the final rule
and any other Federal rule.
5. Significant alternatives to the proposed revisions. As discussed
above and after reviewing the comments submitted, the Board has not
identified any significant alternatives that would reduce the
regulatory burden of this rule on small entities.
Bureau: The Regulatory Flexibility Act (RFA) generally requires an
agency to conduct an initial regulatory flexibility analysis (IRFA) and
a final regulatory flexibility analysis (FRFA) of any rule subject to
notice-and-comment rulemaking requirements.\30\ These analyses must
``describe the impact of the proposed rule on small entities.'' \31\
Neither an IRFA nor FRFA is required if the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities.\32\ The Bureau also is subject to certain
additional procedures under the RFA involving the convening of a panel
to consult with small business representatives prior to proposing a
rule for which an IRFA is required.
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\30\ 5 U.S.C. 601 et seq.
\31\ Id. at 603(a). For purposes of assessing the impacts of the
final rule on small entities, ``small entities'' is defined in the
RFA to include small businesses, small not-for-profit organizations,
and small government jurisdictions. Id. at 601(6). A ``small
business'' is determined by application of Small Business
Administration regulations and reference to the North American
Industry Classification System (NAICS) classifications and size
standards. Id. at 601(3). A ``small organization'' is any ``not-for-
profit enterprise which is independently owned and operated and is
not dominant in its field.'' Id. at 601(4). A ``small governmental
jurisdiction'' is the government of a city, county, town, township,
village, school district, or special district with a population of
less than 50,000. Id. at 601(5).
\32\ Id. at 605(b).
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At the proposed rule stage, the Bureau determined that an IRFA was
not required because the proposal, if adopted, would not have a
significant economic impact on a substantial number of small entities.
For this final rule, the Bureau continues to believe that that
determination is accurate. As discussed in the Bureau's section
1022(b)(2) analysis above, the Bureau believes the final rule's
inflation adjustments hold real expected losses fixed by adjusting for
inflation the amount of funds that must be made available for
withdrawal in accordance with the EFA Act and Regulation CC.
Accordingly, these adjustments for inflation do not introduce costs for
entities, including small entities, other than the paperwork costs
discussed below. In addition, the final rule would implement in
Regulation CC the EGRRCPA extension of the EFA Act's requirements to
institutions in American Samoa, the Commonwealth of the Northern
Mariana Islands, and Guam. The Bureau identified five institutions that
will be required to comply with Regulation CC due to the EGRRCPA
amendments to the EFA Act. Thus, the Bureau concludes that a
substantial number of small entities is not impacted by the proposal to
implement in Regulation CC the EGRRCPA amendments to the EFA Act.
The Bureau recognizes that the final rule will have some impact on
some entities, including those that are small. The Small Business
Administration (SBA) defines small depository institutions as those
with less than $550
[[Page 31694]]
million in assets.\33\ Following guidance from the Small Business
Administration, the Bureau averaged the total assets reported in
quarterly call reports during quarters 1 through 4 of 2018. The Bureau
identified 9,460 entities that had average total assets less than $550
million. These are considered small for the purposes of the RFA. Using
the methodology outlined in the Board's Paperwork Reduction Act
analysis, the Bureau estimates that the quinquennial adjustments will
have an average quinquennial cost of approximately $2,241 for
depository institutions. The Bureau estimates that about 3% of small
entities face a significant economic impact from the quinquennial
information collection.
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\33\ Small Business Administration, Table of Small Business
Standards (2016), available at https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/table-small-business-size-standards.
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In addition, the Bureau estimates the impact of all subpart B
provisions for those covered persons required to comply with subpart B
of Regulation CC as a result of the amendments the EGRRCPA made to the
EFA Act. The EGRRCPA amended the EFA Act to extend its application to
institutions in American Samoa, the Commonwealth of the Northern
Mariana Islands, and Guam. The Bureau identified five institutions that
will be required to comply with Regulation CC due to the EGRRCPA
amendments to the EFA Act.
Thus, the Bureau concludes that a substantial number of small
entities is not impacted by the proposal to implement the EGRRCPA
amendments to the EFA Act in Regulation CC.
Accordingly, the Bureau Director, by signing below, certifies that
this rule will not have a significant economic impact on a substantial
number of small entities.
C. Paperwork Reduction Act
Board: Certain provisions of the final rule contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with
the requirements of the PRA, the Board may not conduct or sponsor, and
the respondent is not required to respond to, an information collection
unless it displays a currently-valid Office of Management and Budget
(OMB) control number. The OMB control number for the Board is 7100-0235
and will be extended, with revision. The Board reviewed the final rule
under the authority delegated to the Board by OMB. The Board invited
comments on: (a) Whether the collections of information are necessary
for the proper performance of the Board's functions, including whether
the information has practical utility; (b) The accuracy of the
estimates of the burden of the information collections, including the
validity of the methodology and assumptions used; (c) Ways to enhance
the quality, utility, and clarity of the information to be collected;
(d) Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and (e) Estimates
of capital or start-up costs and costs of operation, maintenance, and
purchase of services to provide information.
Eight commenters, including credit unions and credit union trade
associations, expressed concern regarding the burden imposed on
institutions to implement the inflation adjustments. Several credit
union commenters stated that the cost burden imposed on institutions to
implement the inflation indexing could exceed the Agencies' estimate in
the proposal, noting in particular the printing and distribution costs
associated with sending notices to customers of the changes in the
institutions' funds-availability policies (commonly referred to as
``change-in-terms'' notices). One commenter specifically voiced concern
about the disproportionate cost impact on smaller credit unions for
printing and mailing notices in general and, in specific, the change-
in-terms notice. To reduce that burden, the commenter also urged the
Agencies to reduce the length of the required funds-availability
disclosures or permit them to accompany monthly account statements.
Another commenter suggested reducing burden by establishing an
exception within the Regulation CC provision, Sec. 229.18(e), that
requires the change-in-terms notice. Specifically, the commenter
suggested that an institution not be required to provide a change-in-
terms notice when its funds-availability policy changes due to the
periodic inflation adjustments to the Regulation CC funds-availability
dollar amounts that are mandated by section 607(f) of the EFA Act.
In their final rule, the Agencies decline to establish in
Regulation CC an exception to the requirement to send a change-in-terms
notice, as this requirement is established by statute. However, the
Agencies note several ways that depository institutions may lower their
costs under the rule, including providing the required notice
electronically and sending it with the monthly account statement, as
follows.
Electronic delivery is permitted where the institution has complied
with the requirements of the Electronic Signatures in Global and
National Commerce Act (15 U.S.C. 7001 et seq. (``E-Sign Act'')). See
comment 229.15(a)-1. Further, the regulation already permits an
institution to send a required change-in-terms notice on or with a
monthly account statement, and this is so irrespective of whether the
institution sends the notice and statement electronically or in paper
form. See comment 229.18(e)-1 (stating that the change-in-terms notice
required by Sec. 229.18(e) ``may be given in any form as long as it is
clear and conspicuous''). In addition, an institution need not set
forth the entirety of its revised funds-availability policy in its
change-in-terms notice. If an institution chooses to provide the notice
by sending a complete new availability disclosure, the institution must
direct the customer to the changed terms in the disclosure by use of a
letter or insert, or by highlighting the changed terms in the
disclosure. See comment 229.18(e)-1. And finally, as discussed above,
the Agencies anticipate providing one year between the date of
publication in the Federal Register of the inflation-adjusted amounts
and the date on which the adjusted amounts become effective. The
Agencies believe that this one-year timeframe provides institutions
with a sufficient interim in which to plan to send their change-in-
terms notices in a way that minimizes the burden associated with doing
so. In light of all of these factors, and given that the inflation
adjustments are statutorily required and will occur only once every
five years, the Agencies believe that the burden on institutions to
send change-in-terms notices reflecting the inflation-adjusted amounts
is reasonable.
Proposed Information Collection
Title of Information Collection: Disclosure Requirements Associated
with Availability of Funds and Collection of Checks (Regulation CC).
Frequency of Response: Quinquennial.
Affected Public: Businesses or other for-profit.
Respondents: State member banks and uninsured state branches and
agencies of foreign banks.
Abstract: Regulation CC (12 CFR part 229) implements the Expedited
Funds Availability Act of 1987 (EFA Act) and the Check Clearing for the
21st Century Act of 2003 (Check 21 Act). The EFA Act was enacted to
provide depositors of checks with prompt funds availability and to
foster improvements in the check
[[Page 31695]]
collection and return processes. Subpart B of Regulation CC implements
the EFA Act's funds-availability provisions and specifies availability
schedules within which banks must make funds available for withdrawal.
Subpart B also implements the EFA Act's rules regarding exceptions to
the schedules, disclosure of funds-availability policies, and payment
of interest.
Current Action: The Agencies are adding Sec. 229.11 to provide the
CPI-W calculation methodology, which includes an explanation of how
annual and cumulative changes (positive or negative) in the CPI-W will
be taken into account, for the dollar amounts in Sec.
229.10(c)(1)(vii) regarding the minimum amount, Sec. 229.12(d) for the
cash withdrawal amount, section 229.13(a) for the new-account amount,
Sec. 229.13(b) for the large-deposit threshold, Sec. 229.13(d) for
repeatedly overdrawn threshold, and Sec. 229.21(a) for the civil
liability amounts.
PRA Burden Estimates
Number of respondents: 940 respondents (100 respondents for changes
in policy).
Estimated average hours per response: Specific availability policy
disclosure and initial disclosures, .02 hours; Notice in specific
policy disclosure, .05 hours; Notice of exceptions, .05 hours;
Locations where employees accept consumer deposits, .25 hours;
Quinquennial inflation adjustments for disclosures (annualized), 8
hours; Annual notice of new ATMs, 5 hours; Changes in policy, 20 hours;
Notification of quinquennial inflation adjustments, 4 hours; Notice of
nonpayment on paying bank, .02 hours; Notification to customer, .02
hours; Expedited recredit for consumers, .25 hours; Expedited recredit
for banks, .25 hours; Consumer awareness, .02 hours; and Expedited
recredit claim notice, .25 hours.
Estimated annual burden hours: Specific availability policy
disclosure and initial disclosures, 9,400 hours; Notice in specific
policy disclosure, 32,900 hours; Notice of exceptions, 94,000 hours;
Locations where employees accept consumer deposits, 235 hours;
Quinquennial inflation adjustments for disclosures (annualized), 7,520
hours; Annual notice of new ATMs, 4,700 hours; Changes in policy, 4,000
hours; Notification of quinquennial inflation adjustments, 3,760 hours;
Notice of nonpayment on paying bank, 658 hours; Notification to
customer, 6,956 hours; Expedited recredit for consumers, 8,225 hours;
Expedited recredit for banks, 3,525 hours; Consumer awareness, 5,640
hours; and Expedited recredit claim notice, 5,875 hours.
Current Total Estimated Annual Burden: 176,114 hours.
Proposed Total Estimated Annual Burden: 187,394 hours.
Bureau: As noted in the proposal, the Bureau was not required to
seek OMB approval for the information collection requirements already
accounted for by the Board above, or for which other agencies are
responsible. Moreover, the Bureau's technical, non-substantive
amendments to Regulation DD as discussed above in Section II.E do not
impose any new or additional information collection requirements that
would require OMB approval.\34\
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\34\ The OMB control number for the information collection
requirements contained in Regulation DD is 3170-0004.
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D. Plain Language Used
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies
to use plain language in all proposed and final rules published after
January 1, 2000. The Board sought to present the proposed rule in a
simple and straightforward manner, and invited comment on the use of
plain language and whether any part of the rule could be more clearly
stated. No commenters commented on use of plain language in the
proposed rule, and the Board has adopted proposed plain language in the
final rule.
E. Interagency Consultations
The Board and the Bureau have performed interagency consultations
regarding this final rule consistent with section 609(e) of the EFA
Act, section 269(a)(1) of TISA, and section 1022(b)(2)(B) of the Dodd-
Frank Act. Section 609(e) of the EFA Act provides that in prescribing
regulations under section 609(a), the Board and the Director of the
Bureau shall consult with the Comptroller of the Currency, the Board of
Directors of the Federal Deposit Insurance Corporation, and the
National Credit Union Administration Board.\35\ Section 269(a)(1) of
TISA provides that in prescribing regulations under section 269(a)(1),
the Bureau shall consult with each agency referred to in TISA section
270(a) (12 U.S.C. 4309(a)).\36\ Section 1022(b)(2)(B) of the Dodd-Frank
Act provides that in prescribing a rule under the Federal consumer
financial laws, the Bureau shall consult with the appropriate
prudential regulators or other Federal agencies prior to proposing a
rule and during the comment process regarding consistency with
prudential, market, or systemic objectives administered by such
agencies.\37\
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\35\ 12 U.S.C. 4008(a).
\36\ 12 U.S.C. 4308(a)(1).
\37\ 12 U.S.C. 5512(b)(2)(B). Although the manner and extent to
which section 1022(b)(2)(B) applies to a rulemaking of this kind is
unclear, in order to inform this rulemaking more fully, the Bureau
performed the described consultations.
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F. Bureau Congressional Review Act Statement
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Bureau will submit a report containing this rule and other required
information to the U.S. Senate, the U.S. House of Representatives, and
the Comptroller General of the United States prior to the rule taking
effect. The Office of Information and Regulatory Affairs (OIRA) has
designated this rule as not a ``major rule'' as defined by 5 U.S.C.
804(2).
List of Subjects in
12 CFR Part 229
Banks, Banking, Federal Reserve System, Reporting and recordkeeping
requirements.
12 CFR Part 1030
Advertising, Banks, Banking, Consumer protection, National banks,
Reporting and recordkeeping requirements, Savings associations.
Board of Governors of the Federal Reserve System
Authority and Issuance
For the reasons set forth in the preamble, the Board of Governors
of the Federal Reserve System amends Regulation CC, 12 CFR part 229, as
set forth below:
PART 229--AVAILABILITY OF FUNDS AND COLLECTIONS OF CHECKS
(REGULATION CC)
0
1. The authority citation for part 229 continues to read as follows:
Authority: 12 U.S.C. 4001-4010, 12 U.S.C. 5001-5018.
Subpart A--General
* * * * *
0
2. In Sec. 229.1, paragraph (a) is revised to read as follows:
Sec. 229.1 Authority and purpose; organization.
(a) Authority and purpose--(1) In general. This part is issued by
the Board of Governors of the Federal Reserve System (Board) to
implement the Expedited Funds Availability Act (12 U.S.C. 4001-4010)
(EFA Act) and the
[[Page 31696]]
Check Clearing for the 21st Century Act (12 U.S.C. 5001-5018) (Check 21
Act).
(2) Joint authority of the Bureau. The Board issues regulations
under Sections 603(d)(1), 604, 605, and 609(a) of the EFA Act (12
U.S.C. 4002(d)(1), 4003, 4004, 4008(a)) jointly with the Director of
the Bureau of Consumer Financial Protection (Bureau).
* * * * *
0
3. In Sec. 229.2, revise paragraphs (c), (ff), and (jj) to read as
follows:
Sec. 229.2 September 1, 2019 Definitions.
* * * * *
(c) Automated teller machine or ATM means an electronic device
located in the United States at which a natural person may make
deposits to an account by cash or check and perform other account
transactions.
* * * * *
(ff) State means a state, the District of Columbia, Puerto Rico,
American Samoa, the Commonwealth of the Northern Mariana Islands, Guam,
or the U.S. Virgin Islands. For purposes of subpart D of this part and,
in connection therewith, this subpart A, state also means the Trust
Territory of the Pacific Islands and any other territory of the United
States.
* * * * *
(jj) United States means the states, including the District of
Columbia, the U.S. Virgin Islands, American Samoa, the Commonwealth of
the Northern Mariana Islands, Guam, and Puerto Rico.
* * * * *
Subpart B--Availability of Funds and Disclosure of Funds
Availability Policies
Sec. 229.10 [Amended]
0
4. In Sec. 229.10, remove ``$100'' and add in its place ``$225'' in
paragraph (c)(1)(vii)(A).
0
5. Add Sec. 229.11 to read as follows:
Sec. 229.11 Adjustment of dollar amounts.
(a) Dollar amounts indexed. The dollar amounts specified in
Sec. Sec. 229.10(c)(1)(vii), 229.12(d), 229.13(a), 229.13(b),
229.13(d), and 229.21(a) shall be adjusted effective on July 1, 2020,
on July 1, 2025, and on July 1 of every fifth year after 2025, in
accordance with the procedure set forth in paragraph (b) of this
section using the Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI-W), as published by the Bureau of Labor
Statistics.
(b) Indexing procedure--(1) Inflation measurement periods. For
dollar amount adjustments that are effective on July 1, 2020, the
inflation measurement period begins in July 2011 and ends in July 2018.
For dollar amount adjustments that are effective on July 1, 2025, the
inflation measurement period begins in July 2018 and ends in July 2023.
For dollar amount adjustments that are effective on July 1 of every
fifth year after 2025, the inflation measurement period begins in July
of every fifth year after 2018 and ends in July of every fifth year
after 2023. Following each inflation measurement period, the dollar
amount adjustments will be published in the Federal Register.
(2) Percentage change. Any dollar amount adjustment under this
section shall be calculated across an inflation measurement period by
the aggregate percentage change in the CPI-W, including both positive
and negative percentage changes. The aggregate percentage change over
the inflation measurement period will be rounded to one decimal place,
using the CPI-W value for July (which is generally released by the
Bureau of Labor Statistics in August).
(3) Adjustment amount. The adjustment amount for each dollar amount
listed in paragraph (a) of this section shall be equal to the aggregate
percentage change multiplied by the existing dollar amount listed in
paragraph (c) of this section and rounded to the nearest multiple of
$25. The adjusted dollar amount will be equal to the sum of the
existing dollar amount and the adjustment amount. No dollar adjustment
will be made when the aggregate percentage change is zero or a negative
percentage change, or when the aggregate percentage change multiplied
by the existing dollar amount listed in paragraph (c) and rounded to
the nearest multiple of $25 results in no change.
(4) Carry-forward. When there is an aggregate negative percentage
change over an inflation measurement period, or when an aggregate
positive percentage change over an inflation measurement period
multiplied by the existing dollar amount listed in paragraph (c) of
this section and rounded to the nearest multiple of $25 results in no
change, the aggregate percentage change over the inflation measurement
period will be included in the calculation to determine the percentage
change at the end of the subsequent inflation measurement period. That
is, the cumulative change in the CPI-W over the two (or more) inflation
measurement periods will be used in the calculation until the
cumulative change results in publication of an adjusted dollar amount
in the regulation.
(c) Amounts. (1) For purposes of Sec. 229.10(c)(1)(vii), the
dollar amount in effect during a particular period is the amount stated
in this paragraph (c)(1) for that period.
(i) Prior to July 21, 2011, the amount is $100.
(ii) From July 21, 2011, through June 30, 2020, by operation of
section 603(a)(2)(D) of the EFA Act (12 U.S.C. 4002(a)(2)(D)) the
amount is $200.
(iii) Effective July 1, 2020, the amount is $225.
(2) For purposes of Sec. 229.12(d), the dollar amount in effect
during a particular period is the amount stated in this paragraph
(c)(2) for that period.
(i) Prior to July 1, 2020, the amount is $400.
(ii) Effective July 1, 2020, the amount is $450.
(3) For purposes of Sec. 229.13(a), (b), and (d), the dollar
amount in effect during a particular period is the amount stated in
this paragraph (c)(3) for that period.
(i) Prior to July 1, 2020, the amount is $5,000.
(ii) Effective July 1, 2020, the amount is $5,525.
(4) For purposes of Sec. 229.21(a), the dollar amounts in effect
during a particular period are the amounts stated in this paragraph
(c)(4) for the period.
(i) Prior to July 1, 2020, the amounts are $100, $1,000, and
$500,000 respectively.
(ii) Effective July 1, 2020, the amounts are $100, $1,100, and
$552,500 respectively.
0
6. In Sec. 229.12:
0
a. Remove ``$100'' and add in its place ``$225'' in paragraph (d); and
0
b. Revise paragraphs (e) introductory text and (e)(1).
The revisions read as follows:
Sec. 229.12 Availability schedule.
* * * * *
(e) Extension of schedule for certain deposits in Alaska, Hawaii,
Puerto Rico, American Samoa, the Commonwealth of the Northern Mariana
Islands, Guam, and the U.S. Virgin Islands. The depositary bank may
extend the time periods set forth in this section by one business day
in the case of any deposit, other than a deposit described in Sec.
229.10, that is--
(1) Deposited in an account at a branch of a depositary bank if the
branch is located in Alaska, Hawaii, Puerto Rico, American Samoa, the
Commonwealth of the Northern Mariana Islands, Guam, or the U.S. Virgin
Islands; and
* * * * *
[[Page 31697]]
Sec. 229.21 [Amended]
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7. In Sec. 229.21, remove ``$100'' and add in its place ``$225'' in
paragraph (a)(2)(i).
Sec. 229.43 [Removed and Reserved]
0
8. Section 229.43 is removed and reserved.
0
9. Amend appendix E to part 229 as follows:
0
a. Remove the dollar amounts in the ``Remove'' column wherever they
appear and add in their place the dollar amounts in the ``Add'' column
in the following table:
------------------------------------------------------------------------
Section Remove Add
------------------------------------------------------------------------
229.10(c)..................................... $5,000 $5,525
229.12(d)..................................... 400 450
229.13(a), (b), and (d)....................... 5,000 5,525
------------------------------------------------------------------------
0
b. In Section II.D, revise paragraph 1.
0
c. In Section IV.D, revise paragraph 5 and add paragraph 7.
0
d. Section V is revised.
0
e. In Section VI.B, paragraph 4 is added.
0
f In Section VI.E paragraphs 1 and 2 are revised.
0
g. Section VII.C, paragraph 2 is revised and paragraph 4 is added.
0
h. In Section VII.E, paragraph 5 is added.
0
i. In Section VII.H, paragraph 2(b) is revised.
0
j. In Section XIV.C, paragraph 2 is revised.
0
k. In Section XV.A, paragraph 2 is added.
0
l. Section XXIX is removed and reserved.
The revisions and additions read as follows:
Appendix E to Part 229--Commentary
* * * * *
II. Section 229.2 Definitions
* * * * *
D. * * *
1. ATM is not defined in the EFA Act. The regulation defines an
ATM as an electronic device located in the United States at which a
natural person may make deposits to an account by cash or check and
perform other account transactions. Point-of-sale terminals,
machines that only dispense cash, night depositories, and lobby
deposit boxes are not ATMs within the meaning of the definition,
either because they do not accept deposits of cash or checks (e.g.,
point-of-sale terminals and cash dispensers) or because they only
accept deposits (e.g., night depositories and lobby boxes) and
cannot perform other transactions. A lobby deposit box or similar
receptacle in which written payment orders or deposits may be placed
is not an ATM.
* * * * *
IV. * * *
D. * * *
5. First $225
a. The EFA Act and regulation also require that up to $225 of
the aggregate deposit by check or checks not subject to next-day
availability on any one banking day be made available on the next
business day. For example, if $70 were deposited in an account by
check(s) on a Monday, the entire $70 must be available for
withdrawal at the start of business on Tuesday. If $400 were
deposited by check(s) on a Monday, this section requires that $225
of the funds be available for withdrawal at the start of business on
Tuesday. The portion of the customer's deposit to which the $225
must be applied is at the discretion of the depositary bank, as long
as it is not applied to any checks subject to next-day availability.
The $225 next-day availability rule does not apply to deposits at
nonproprietary ATMs.
b. The $225 that must be made available under this rule is in
addition to the amount that must be made available for withdrawal on
the business day after deposit under other provisions of this
section. For example, if a customer deposits a $1,000 Treasury check
and a $1,000 local check in its account on Monday, $1,225 must be
made available for withdrawal on Tuesday--the proceeds of the $1,000
Treasury check, as well as the first $225 of the local check.
c. A depositary bank may aggregate all local and nonlocal check
deposits made by a customer on a given banking day for the purposes
of the $225 next-day availability rule. Thus, if a customer has two
accounts at the depositary bank, and on a particular banking day
makes deposits to each account, $225 of the total deposited to the
two accounts must be made available on the business day after
deposit. Banks may aggregate deposits to individual and joint
accounts for the purposes of this provision.
d. If the customer deposits a $500 local check and gets $225
cash back at the time of deposit, the bank need not make an
additional $225 available for withdrawal on the following day.
Similarly, if the customer depositing the local check has a negative
book balance, or negative available balance in its account at the
time of deposit, the $225 that must be available on the next
business day may be made available by applying the $225 to the
negative balance, rather than making the $225 available for
withdrawal by cash or check on the following day.
* * * * *
7. Dollar Amount Adjustment--See section 229.11 for the rules
regarding adjustments for inflation every five years to the dollar
amounts used in this section.
* * * * *
V. Section 229.11 Adjustment of Dollar Amounts
1. Example of a positive adjustment. If the CPI-W for July (and
released in August) of the base year and the adjustment year were
100 and 114.7, respectively, the aggregate percentage change for the
period would be 14.7%. If the applicable dollar amount was $200 for
the prior period, then the adjusted figure would become $225, as the
change of $29.40 results in rounding to $25.
2. Example of no adjustment. If the CPI-W for July (and released
in August) of the base year and the adjustment year were 100 and
104, respectively, the aggregate percentage change would be 4.0%. If
the applicable dollar amount was $200 for the prior period, then the
adjusted figure would remain $200, as the change of $8.00 does not
result in rounding to $25.
3. Example of accounting for aggregate decrease in subsequent
period. If the CPI-W for July (and released in August) of the base
year and the adjustment year were 100 and 95, respectively, the
aggregate percentage change would be -5%, and no adjustment to the
dollar amounts would occur. The CPI-W for July (and released in
August) of the base year would be the starting point for calculating
any CPI-W increase across subsequent five-year periods. Therefore,
if the CPI-W in July (and released in August) of the base year and
the CPI-W in July (and released in August) of the years at the end
of the next two five-year periods were 100, 95, and 109,
respectively, the aggregate percentage change for the entire period
would be 9.0%. If the applicable dollar amount was $5,000 for the
prior period, then the adjusted figure would become $5,450 as the
change of $450 does not require rounding because it is a multiple of
$25.
4. Example of accounting for aggregate lack of dollar amount
change in subsequent period. If the CPI-W for July (and released in
August) of the base year and the year at the end of the subsequent
five-year period were 100 and 105, respectively, the aggregate
change over the five-year period would be 5%, and no adjustment to
the $200 amount would occur, as the change of $10 does not result in
rounding to $225. Nonetheless, the CPI-W for July (and released in
August) of the base year would be the starting point for calculating
any CPI-W percentage increase across the subsequent five-year
period. Therefore, if the CPI-W in July (and released in August) of
the base year and the CPI-W in July (and released in August) of the
years at the end of the next two five-year periods were 100, 105,
and 112.6, respectively, the aggregate percentage change for the
entire period would be 12.6%. If the applicable dollar amount was
$200 for the prior period, then the adjusted figure would become
$225 as the change of $25.20 results in rounding to $225, the
nearest multiple of $25.
VI. * * *
B. 229.12(d) Time Period Adjustment for Withdrawal by Cash or
Similar Means
* * * * *
4. Dollar Amount Adjustment--See section 229.11 for the rules
regarding adjustments for inflation every five years to the dollar
amounts in this section.
* * * * *
E. 229.12(e) Extension of Schedule for Certain Deposits in Alaska,
Hawaii, Puerto Rico, American Samoa, the Commonwealth of the
Northern Mariana Islands, Guam, and the U.S. Virgin Islands
1. The EFA Act and regulation provide an extension of the
availability schedules for
[[Page 31698]]
check deposits at a branch of a bank if the branch is located in
Alaska, Hawaii, Puerto Rico, American Samoa, the Commonwealth of the
Northern Mariana Islands, Guam, or the U.S. Virgin Islands. The
schedules for local checks, nonlocal checks (including nonlocal
checks subject to the reduced schedules of appendix B), and deposits
at nonproprietary ATMs are extended by one business day for checks
deposited to accounts in banks located in these jurisdictions that
are drawn on or payable at or through a paying bank not located in
the same jurisdiction as the depositary bank. For example, a check
deposited in a bank in Hawaii and drawn on a San Francisco paying
bank must be made available for withdrawal not later than the third
business day following deposit. This extension does not apply to
deposits that must be made available for withdrawal on the next
business day.
2. The Congress did not provide this extension of the schedules
to checks drawn on a paying bank located in Alaska, Hawaii, Puerto
Rico, American Samoa, the Commonwealth of the Northern Mariana
Islands, Guam, or the U.S. Virgin Islands and deposited in an
account at a depositary bank in the 48 contiguous states. Therefore,
a check deposited in a San Francisco bank drawn on a Hawaii paying
bank must be made available for withdrawal not later than the second
rather than the third business day following deposit.
VII. Section 229.13 Exceptions
B. * * *
4. Dollar Amount Adjustment--See section 229.11 for the rules
regarding adjustments for inflation every five years to the dollar
amounts in this section.
C. * * *
2. The following example illustrates the operation of the large-
deposit exception. If a customer deposits $2,000 in cash and a
$9,000 local check on a Monday, $2,225 (the proceeds of the cash
deposit and $225 from the local-check deposit) must be made
available for withdrawal on Tuesday. An additional $5,300 of the
proceeds of the local check must be available for withdrawal on
Wednesday in accordance with the local schedule, and the remaining
$3,475 may be held for an additional period of time under the large-
deposit exception.
* * * * *
4. Dollar Amount Adjustment--See section 229.11 for the rules
regarding adjustments for inflation every five years to the dollar
amounts in this section.
* * * * *
E. * * *
5. Dollar Amount Adjustment--See section 229.11 for the
calculation method used to adjust the dollar amounts in this section
every five years.
* * * * *
H. * * *
2. * * *
b. In the case of a deposit of multiple checks, the depositary
bank has the discretion to place an exception hold on any
combination of checks in excess of $5,525. The notice should enable
a customer to determine the availability of the deposit in the case
of a deposit of multiple checks. For example, if a customer deposits
a $5,525 local check and a $5,525 nonlocal check, under the large-
deposit exception, the depositary bank may make funds available in
the amount of (1) $225 on the first business day after deposit,
$5,300 on the second business day after deposit (local check), and
$5,525 on the eleventh business day after deposit (nonlocal check
with six-day exception hold), or (2) $225 on the first business day
after deposit, $5,300 on the fifth business day after deposit
(nonlocal check), and $5,525 on the seventh business day after
deposit (local check with five-day exception hold). The notice
should reflect the bank's priorities in placing exception holds on
next-day (or second-day), local, and nonlocal checks.
* * * * *
XIV. Section 229.20 Relation to State Law
* * * * *
C. * * *
2. Under a state law, some categories of deposits could be
available for withdrawal sooner or later than the time required by
this subpart, depending on the composition of the deposit. For
example, the EFA Act and this regulation (Sec. 229.10(c)(1)(vii))
require next-day availability for the first $225 of the aggregate
deposit of local or nonlocal checks on any day, and a state law
could require next-day availability for any check of $200 or less
that is deposited. Under the EFA Act and this regulation, if either
one $300 check or three $100 checks are deposited on a given day,
$225 must be made available for withdrawal on the next business day,
and $75 must be made available in accordance with the local or
nonlocal schedule. Under the state law, however, the two deposits
would be subject to different availability rules. In the first case,
none of the proceeds of the deposit would be subject to next-day
availability; in the second case, the entire proceeds of the deposit
would be subject to next-day availability. In this example, because
the state law would, in some situations, permit a hold longer than
the maximum permitted by the EFA Act, this provision of state law is
inconsistent and preempted in its entirety.
* * * * *
XV. Section 229.21 Civil Liability
A. * * *
2. Dollar Amount Adjustment--See section 229.11 for the rules
regarding adjustments for inflation every five years to the dollar
amounts in this section.
* * * * *
Bureau of Consumer Financial Protection
Authority and Issuance
For the reasons set forth in the preamble, the Bureau of Consumer
Financial Protection amends Regulation DD, 12 CFR part 1030, as
follows:
PART 1030--TRUTH IN SAVINGS (REGULATION DD)
0
10. The authority citation for part 1030 continues to read as follows:
Authority: 12 U.S.C. 4302-4304, 4308, 5512, 5581.
0
11. In Sec. 1030.1, paragraph (e) is added to read as follows:
Sec. 1030.1 Authority, purpose, coverage, and effect on state laws.
* * * * *
(e) Relationship to Regulation CC. The Director of the Bureau and
the Board of Governors of the Federal Reserve System jointly issue
regulations under sections 603(d)(1), 604, 605, and 609(a) of the
Expedited Funds Availability Act (12 U.S.C. 4002(d)(1), 4003, 4004,
4008(a)) that are codified within Regulation CC (12 CFR part 229).
0
12. In Sec. 1030.7, paragraph (c) is revised to read as follows:
Sec. 1030.7 Payment of interest.
* * * * *
(c) Date interest begins to accrue. Interest shall begin to accrue
not later than the business day specified for interest-bearing accounts
in section 606 of the Expedited Funds Availability Act (12 U.S.C. 4005)
and in Sec. 229.14 of that act's implementing Regulation CC (12 CFR
part 229). Interest shall accrue until the day funds are withdrawn.
0
13. Appendix A to part 1030 is revised to read as follows:
Appendix A to Part 1030--Annual Percentage Yield Calculation
The annual percentage yield measures the total amount of
interest paid on an account based on the interest rate and the
frequency of compounding. The annual percentage yield reflects only
interest and does not include the value of any bonus (or other
consideration worth $10 or less) that may be provided to the
consumer to open, maintain, increase or renew an account. Interest
or other earnings are not to be included in the annual percentage
yield if such amounts are determined by circumstances that may or
may not occur in the future. The annual percentage yield is
expressed as an annualized rate, based on a 365-day year.
Institutions may calculate the annual percentage yield based on a
365-day or a 366-day year in a leap year. Part I of this appendix
discusses the annual percentage yield calculations for account
disclosures and advertisements, while part II discusses annual
percentage yield earned calculations for periodic statements.
Part I. Annual Percentage Yield for Account Disclosures and Advertising
Purposes
In general, the annual percentage yield for account disclosures
under Sec. Sec. 1030.4 and 1030.5 and for advertising under Sec.
1030.8 is an annualized rate that reflects the relationship between
the amount of interest
[[Page 31699]]
that would be earned by the consumer for the term of the account and
the amount of principal used to calculate that interest. Special
rules apply to accounts with tiered and stepped interest rates, and
to certain time accounts with a stated maturity greater than one
year.
A. General Rules
Except as provided in part I.E. of this appendix, the annual
percentage yield shall be calculated by the formula shown below.
Institutions shall calculate the annual percentage yield based on
the actual number of days in the term of the account. For accounts
without a stated maturity date (such as a typical savings or
transaction account), the calculation shall be based on an assumed
term of 365 days. In determining the total interest figure to be
used in the formula, institutions shall assume that all principal
and interest remain on deposit for the entire term and that no other
transactions (deposits or withdrawals) occur during the term. This
assumption shall not be used if an institution requires, as a
condition of the account, that consumers withdraw interest during
the term. In such a case, the interest (and annual percentage yield
calculation) shall reflect that requirement. For time accounts that
are offered in multiples of months, institutions may base the number
of days on either the actual number of days during the applicable
period, or the number of days that would occur for any actual
sequence of that many calendar months. If institutions choose to use
the latter rule, they must use the same number of days to calculate
the dollar amount of interest earned on the account that is used in
the annual percentage yield formula (where ``Interest'' is divided
by ``Principal'').
The annual percentage yield is calculated by use of the
following general formula (``APY'' is used for convenience in the
formulas):
APY=100 [(1+Interest/Principal)(365/Days in term)-1]
``Principal'' is the amount of funds assumed to have been
deposited at the beginning of the account.
``Interest'' is the total dollar amount of interest earned on
the Principal for the term of the account.
``Days in term'' is the actual number of days in the term of the
account. When the ``days in term'' is 365 (that is, where the stated
maturity is 365 days or where the account does not have a stated
maturity), the annual percentage yield can be calculated by use of
the following simple formula:
APY=100 (Interest/Principal)
Examples:
(1) If an institution pays $61.68 in interest for a 365-day year
on $1,000 deposited into a NOW account, using the general formula
above, the annual percentage yield is 6.17%:
APY=100[(1+61.68/1,000)(365/365)-1]
APY=6.17%
Or, using the simple formula above (since, as an account without
a stated term, the term is deemed to be 365 days):
APY=100(61.68/1,000)
APY=6.17%
(2) If an institution pays $30.37 in interest on a $1,000 six-
month certificate of deposit (where the six-month period used by the
institution contains 182 days), using the general formula above, the
annual percentage yield is 6.18%:
APY=100[(1+30.37/1,000)(365/182)-1]
APY=6.18%
B. Stepped-Rate Accounts (Different Rates Apply in Succeeding
Periods)
For accounts with two or more interest rates applied in
succeeding periods (where the rates are known at the time the
account is opened), an institution shall assume each interest rate
is in effect for the length of time provided for in the deposit
contract.
Examples:
(1) If an institution offers a $1,000 6-month certificate of
deposit on which it pays a 5% interest rate, compounded daily, for
the first three months (which contain 91 days), and a 5.5% interest
rate, compounded daily, for the next three months (which contain 92
days), the total interest for six months is $26.68 and, using the
general formula above, the annual percentage yield is 5.39%:
APY=100[(1+26.68/1,000)(365/183)-1]
APY=5.39%
(2) If an institution offers a $1,000 two-year certificate of
deposit on which it pays a 6% interest rate, compounded daily, for
the first year, and a 6.5% interest rate, compounded daily, for the
next year, the total interest for two years is $133.13, and, using
the general formula above, the annual percentage yield is 6.45%:
APY=100[(1+133.13/1,000)(365/730)-1]
APY=6.45%
C. Variable-Rate Accounts
For variable-rate accounts without an introductory premium or
discounted rate, an institution must base the calculation only on
the initial interest rate in effect when the account is opened (or
advertised), and assume that this rate will not change during the
year.
Variable-rate accounts with an introductory premium (or
discount) rate must be calculated like a stepped-rate account. Thus,
an institution shall assume that:
(1) The introductory interest rate is in effect for the length
of time provided for in the deposit contract; and
(2) The variable interest rate that would have been in effect
when the account is opened or advertised (but for the introductory
rate) is in effect for the remainder of the year. If the variable
rate is tied to an index, the index-based rate in effect at the time
of disclosure must be used for the remainder of the year. If the
rate is not tied to an index, the rate in effect for existing
consumers holding the same account (who are not receiving the
introductory interest rate) must be used for the remainder of the
year.
For example, if an institution offers an account on which it
pays a 7% interest rate, compounded daily, for the first three
months (which, for example, contain 91 days), while the variable
interest rate that would have been in effect when the account was
opened was 5%, the total interest for a 365-day year for a $1,000
deposit is $56.52 (based on 91 days at 7% followed by 274 days at
5%). Using the simple formula, the annual percentage yield is 5.65%:
APY=100(56.52/1,000)
APY=5.65%
D. Tiered-Rate Accounts (Different Rates Apply to Specified Balance
Levels)
For accounts in which two or more interest rates paid on the
account are applicable to specified balance levels, the institution
must calculate the annual percentage yield in accordance with the
method described below that it uses to calculate interest. In all
cases, an annual percentage yield (or a range of annual percentage
yields, if appropriate) must be disclosed for each balance tier.
For purposes of the examples discussed below, assume the
following:
------------------------------------------------------------------------
Deposit balance required to earn
Interest rate (percent) rate
------------------------------------------------------------------------
5.25.................................. Up to but not exceeding $2,500.
5.50.................................. Above $2,500 but not exceeding
$15,000.
5.75.................................. Above $15,000.
------------------------------------------------------------------------
Tiering Method A. (1) Under this method, an institution pays on
the full balance in the account the stated interest rate that
corresponds to the applicable deposit tier. For example, if a
consumer deposits $8,000, the institution pays the 5.50% interest
rate on the entire $8,000.
When this method is used to determine interest, only one annual
percentage yield will apply to each tier. Within each tier, the
annual percentage yield will not vary with the amount of principal
assumed to have been deposited.
For the interest rates and deposit balances assumed above, the
institution will state three annual percentage yields--one
corresponding to each balance tier. Calculation of each annual
percentage yield is similar for this type of account as for accounts
with a single interest rate. Thus, the calculation is based on the
total amount of interest that would be received by the consumer for
each tier of the account for a year and the principal assumed to
have been deposited to earn that amount of interest.
First tier. Assuming daily compounding, the institution will pay
$53.90 in interest on a $1,000 deposit. Using the general formula,
for the first tier, the annual percentage yield is 5.39%:
APY=100[(1+53.90/1,000)(365/365)-1]
APY=5.39%
Using the simple formula:
APY=100(53.90/1,000)
APY=5.39%
Second tier. The institution will pay $452.29 in interest on an
$8,000 deposit. Thus, using the simple formula, the annual
percentage yield for the second tier is 5.65%:
APY=100(452.29/8,000)
APY=5.65%
Third tier. The institution will pay $1,183.61 in interest on a
$20,000 deposit. Thus, using the simple formula, the annual
percentage yield for the third tier is 5.92%:
APY=100(1,183.61/20,000)
[[Page 31700]]
APY=5.92%
Tiering Method B. Under this method, an institution pays the
stated interest rate only on that portion of the balance within the
specified tier. For example, if a consumer deposits $8,000, the
institution pays 5.25% on $2,500 and 5.50% on $5,500 (the difference
between $8,000 and the first tier cut-off of $2,500).
The institution that computes interest in this manner must
provide a range that shows the lowest and the highest annual
percentage yields for each tier (other than for the first tier,
which, like the tiers in Method A, has the same annual percentage
yield throughout). The low figure for an annual percentage yield
range is calculated based on the total amount of interest earned for
a year assuming the minimum principal required to earn the interest
rate for that tier. The high figure for an annual percentage yield
range is based on the amount of interest the institution would pay
on the highest principal that could be deposited to earn that same
interest rate. If the account does not have a limit on the maximum
amount that can be deposited, the institution may assume any amount.
For the tiering structure assumed above, the institution would
state a total of five annual percentage yields--one figure for the
first tier and two figures stated as a range for the other two
tiers.
First tier. Assuming daily compounding, the institution would
pay $53.90 in interest on a $1,000 deposit. For this first tier,
using the simple formula, the annual percentage yield is 5.39%:
APY=100(53.90/1,000)
APY=5.39%
Second tier. For the second tier, the institution would pay
between $134.75 and $841.45 in interest, based on assumed balances
of $2,500.01 and $15,000, respectively. For $2,500.01, interest
would be figured on $2,500 at 5.25% interest rate plus interest on
$.01 at 5.50%. For the low end of the second tier, therefore, the
annual percentage yield is 5.39%, using the simple formula:
APY=100(134.75/2,500)
APY=5.39%
For $15,000, interest is figured on $2,500 at 5.25% interest
rate plus interest on $12,500 at 5.50% interest rate. For the high
end of the second tier, the annual percentage yield, using the
simple formula, is 5.61%:
APY=100(841.45/15,000)
APY=5.61%
Thus, the annual percentage yield range for the second tier is
5.39% to 5.61%.
Third tier. For the third tier, the institution would pay
$841.45 in interest on the low end of the third tier (a balance of
$15,000.01). For $15,000.01, interest would be figured on $2,500 at
5.25% interest rate, plus interest on $12,500 at 5.50% interest
rate, plus interest on $.01 at 5.75% interest rate. For the low end
of the third tier, therefore, the annual percentage yield (using the
simple formula) is 5.61%:
APY=100 (841.45/15,000)
APY=5.61%
Since the institution does not limit the account balance, it may
assume any maximum amount for the purposes of computing the annual
percentage yield for the high end of the third tier. For an assumed
maximum balance amount of $100,000, interest would be figured on
$2,500 at 5.25% interest rate, plus interest on $12,500 at 5.50%
interest rate, plus interest on $85,000 at 5.75% interest rate. For
the high end of the third tier, therefore, the annual percentage
yield, using the simple formula, is 5.87%.
APY=100 (5,871.79/100,000)
APY=5.87%
Thus, the annual percentage yield range that would be stated for
the third tier is 5.61% to 5.87%.
If the assumed maximum balance amount is $1,000,000 instead of
$100,000, the institution would use $985,000 rather than $85,000 in
the last calculation. In that case, for the high end of the third
tier the annual percentage yield, using the simple formula, is
5.91%:
APY=100 (59134.22/1,000,000)
APY=5.91%
Thus, the annual percentage yield range that would be stated for
the third tier is 5.61% to 5.91%.
E. Time Accounts With a Stated Maturity Greater Than One Year That
Pay Interest at Least Annually
1. For time accounts with a stated maturity greater than one
year that do not compound interest on an annual or more frequent
basis, and that require the consumer to withdraw interest at least
annually, the annual percentage yield may be disclosed as equal to
the interest rate.
Example
(1) If an institution offers a $1,000 two-year certificate of
deposit that does not compound and that pays out interest semi-
annually by check or transfer at a 6.00% interest rate, the annual
percentage yield may be disclosed as 6.00%.
(2) For time accounts covered by this paragraph that are also
stepped-rate accounts, the annual percentage yield may be disclosed
as equal to the composite interest rate.
Example
(1) If an institution offers a $1,000 three-year certificate of
deposit that does not compound and that pays out interest annually
by check or transfer at a 5.00% interest rate for the first year,
6.00% interest rate for the second year, and 7.00% interest rate for
the third year, the institution may compute the composite interest
rate and APY as follows:
(a) Multiply each interest rate by the number of days it will be
in effect;
(b) Add these figures together; and
(c) Divide by the total number of days in the term.
(2) Applied to the example, the products of the interest rates
and days the rates are in effect are (5.00%x365 days) 1825,
(6.00%x365 days) 2190, and (7.00%x365 days) 2555, respectively. The
sum of these products, 6570, is divided by 1095, the total number of
days in the term. The composite interest rate and APY are both
6.00%.
Part II. Annual Percentage Yield Earned for Periodic Statements
The annual percentage yield earned for periodic statements under
Sec. 1030.6(a) is an annualized rate that reflects the relationship
between the amount of interest actually earned on the consumer's
account during the statement period and the average daily balance in
the account for the statement period. Pursuant to Sec. 1030.6(b),
however, if an institution uses the average daily balance method and
calculates interest for a period other than the statement period,
the annual percentage yield earned shall reflect the relationship
between the amount of interest earned and the average daily balance
in the account for that other period.
The annual percentage yield earned shall be calculated by using
the following formulas (``APY Earned'' is used for convenience in
the formulas):
A. General Formula
APY Earned=100 [(1+Interest earned/
Balance)(365/Days in period)-1]
``Balance'' is the average daily balance in the account for the
period.
``Interest earned'' is the actual amount of interest earned on
the account for the period.
``Days in period'' is the actual number of days for the period.
Examples
(1) Assume an institution calculates interest for the statement
period (and uses either the daily balance or the average daily
balance method), and the account has a balance of $1,500 for 15 days
and a balance of $500 for the remaining 15 days of a 30-day
statement period. The average daily balance for the period is
$1,000. The interest earned (under either balance computation
method) is $5.25 during the period. The annual percentage yield
earned (using the formula above) is 6.58%:
APY Earned=100 [(1+5.25/1,000)(365/30)-1]
APY Earned=6.58%
(2) Assume an institution calculates interest on the average
daily balance for the calendar month and provides periodic
statements that cover the period from the 16th of one month to the
15th of the next month. The account has a balance of $2,000
September 1 through September 15 and a balance of $1,000 for the
remaining 15 days of September. The average daily balance for the
month of September is $1,500, which results in $6.50 in interest
earned for the month. The annual percentage yield earned for the
month of September would be shown on the periodic statement covering
September 16 through October 15. The annual percentage yield earned
(using the formula above) is 5.40%:
APY Earned=100 [(6.50/1,500)(365/30)-1]
APY Earned=5.40%
(3) Assume an institution calculates interest on the average
daily balance for a quarter (for example, the calendar months of
September through November), and provides monthly periodic
statements covering calendar months. The account has a balance of
$1,000 throughout the 30 days of September, a balance of $2,000
throughout the 31 days of October, and a balance of
[[Page 31701]]
$3,000 throughout the 30 days of November. The average daily balance
for the quarter is $2,000, which results in $21 in interest earned
for the quarter. The annual percentage yield earned would be shown
on the periodic statement for November. The annual percentage yield
earned (using the formula above) is 4.28%:
APY Earned=100 [(1+21/2,000) (365/91)-1]
APY Earned=4.28%
B. Special Formula for Use Where Periodic Statement Is Sent More
Often Than the Period for Which Interest Is Compounded
Institutions that use the daily balance method to accrue
interest and that issue periodic statements more often than the
period for which interest is compounded shall use the following
special formula:
[GRAPHIC] [TIFF OMITTED] TR03JY19.001
The following definition applies for use in this formula (all
other terms are defined under part II):
``Compounding'' is the number of days in each compounding
period.
Assume an institution calculates interest for the statement
period using the daily balance method, pays a 5.00% interest rate,
compounded annually, and provides periodic statements for each
monthly cycle. The account has a daily balance of $1,000 for a 30-
day statement period. The interest earned is $4.11 for the period,
and the annual percentage yield earned (using the special formula
above) is 5.00%:
[GRAPHIC] [TIFF OMITTED] TR03JY19.002
APY Earned=5.00%
0
14. In Supplement I to part 1030, under Section 1030.7--Payment of
Interest, paragraph 7(c)--Date interest begins to accrue is revised to
read as follows:
Supplement I to Part 1030--Official Interpretations
* * * * *
Section 1030.7--Payment of Interest
* * * * *
(c) Date interest begins to accrue.
1. Relation to Regulation CC. Institutions may rely on the
Expedited Funds Availability Act (EFAA) and Regulation CC (12 CFR
part 229) to determine, for example, when a deposit is considered
made for purposes of interest accrual, or when interest need not be
paid on funds because a deposited check is later returned unpaid.
2. Ledger and collected balances. Institutions may calculate
interest by using a ``ledger'' or ``collected'' balance method, as
long as the crediting requirements of the EFAA are met (12 CFR
229.14).
3. Withdrawal of principal. Institutions must accrue interest on
funds until the funds are withdrawn from the account. For example,
if a check is debited to an account on a Tuesday, the institution
must accrue interest on those funds through Monday.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, June 20, 2019.
Ann E. Misback,
Secretary of the Board.
Dated: June 10, 2019.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2019-13668 Filed 7-1-19; 4:15 pm]
BILLING CODE 6210-01-P