Q: If we doubt the collectability of a check that a customer presents to the Bank, are we able to put “an indefinite” hold on the funds?
A: While Reg. CC does not specify the allowable duration of an exception hold for this reason, the Reg. says that the depositary bank may extend the hold for “a reasonable period of time.” The Fed has told us in guidance that “reasonable” is generally understood to be one additional day for on-us checks and five additional business days for local checks. The bank can impose a longer hold, but it would bear the burden of showing that the hold time is “reasonable.”
If an exception contained in paragraphs (b) through (f) of this section applies, the depositary bank may extend the time periods established under §§229.10(c) and 229.12 by a reasonable period of time.
12 CFR §229.13(h)(1): https://www.ecfr.gov/cgi-bin/text-idx?SID=edf865ac553db81f9a0e3afd580230a1&mc=true&node=pt12.3.229&rgn=div5#se12.3.229_113
A “reasonable” time period is generally defined as one additional business day (making a total of two business days) for on-us checks, and five additional business days (total of seven) for local checks; your institution may impose longer exception holds, but you may have the burden of proving that they are “reasonable.”
A Guide for Financial Institutions:https://www.federalreserve.gov/pubs/regcc/regcc.htm
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