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Special Bank Report - Banks Best Kept Secret - Overview of Funds Availability Rules

South Carolina Credit Unions - State Banking Associations - South Carolina Banks


SPECIAL BANK REPORT:

1997 A RECORD YEAR FOR S.C. BANK ROBBERIES

National statistics indicate that bank robbery is profitable, with holdups averaging $10,000 per take.

Bank robbers struck in South Carolina at a record pace in 1997, hitting a bank about once every three days.There were 124 bank robberies in 1997, up nine from the 1996's record, according to FBI records.

The Upstate had the most robberies last year, with 48, according to preliminary figures from the FBI. The Midlands had 32 holdups. Each region includes 10 counties.

A seven-county area around Charleston, SC, was third with 18 robberies, a three-county region around Myrtle Beach reported 16. FBI regions in and around Rock Hill, Florence and Aiken, SC, together had nine holdups.

According to the FBI, thieves took more than $77 million in 7,704 successful holdups of financial institutions in 1996.

Police eventually got back part or all of the money in 1,528 cases. In 679 cases, the robbers came away empty-handed.Investigators identified the robbers in about 60 percent of the holdups nationwide; half were drug abusers and nearly a fifth had bank-robbery convictions. Most robberies occur on Monday or Tuesday, usually before 1 p.m.

The FBI analysis showed that bank robbers are about equally divided between blacks and whites, and men are far more likely to hold up a bank than women.While more bank robbers hand tellers a note (4,127) than show a gun (2,602), violence did occur in 399 holdups. Nineteen people were killed, 270 were injured and 57 were taken as hostages.

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BANKS BEST KEPT SECRET:

Police officials view check fraud as a "white collar crime", often going unpunished or resulting in either probation or a light jail sentence.

Under Regulation CC, laws were introduced to accelerate check deposit availability. Banks are required to make funds available within two days for local checks and five days for out-of-town checks. These regulations, coupled with competitive pressures, have forced banks to make funds available for check writing BEFORE previous deposits have actually been cleared.

Recent changes in the Uniform Commercial Code have shifted the liability of forged checks off the banks and onto account holders. These new laws stress"due diligence" and "comparative negligence", where parties split check fraud liability and monetary losses based upon the respective levels of fault.

U.C.C. - ARTICLE 4 - BANK DEPOSITS AND COLLECTIONS PART 4. RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER


4-406. CUSTOMER'S DUTY TO DISCOVER AND REPORT UNAUTHORIZED SIGNATURE OR ALTERATION:

  • A bank that sends or makes available to a customer a statement of account showing payment of items for the account shall either return or make available to the customer the items paid or provide information in the statement of account sufficient to allow the customer reasonably to identify the items paid. The statement of account provides sufficient information if the item is described by item number, amount, and date of payment.

  • If the items are not returned to the customer, the person retaining the items shall either retain the items or, if the items are destroyed, maintain the capacity to furnish legible copies of the items until the expiration of seven years after receipt of the items. A customer may request an item from the bank that paid the item, and that bank must provide in a reasonable time either the item or, if the item has been destroyed or is not otherwise obtainable, a legible copy of the item.

  • If a bank sends or makes available a statement of account or items pursuant to subsection (a), the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.

  • If the bank proves that the customer failed, with respect to an item, to comply with the duties imposed on the customer by subsection (c), the customer is precluded from asserting against the bank:

    1. the customer's unauthorized signature or any alteration on the item, if the bank also proves that it suffered a loss by reason of the failure; and

    2. the customer's unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank.

    3. If subsection (d) applies and the customer proves that the bank failed to exercise ordinary care in paying the item and that the failure substantially contributed to loss, the loss is allocated between the customer precluded and the bank asserting the preclusion according to the extent to which the failure of the customer to comply with subsection (c) and the failure of the bank to exercise ordinary care contributed to the loss. If the customer proves that the bank did not pay the item in good faith, the preclusion under subsection (d) does not apply.

    4. Without regard to care or lack of care of either the customer or the bank, a customer who does not within one year after the statement or items are made available to the customer (subsection (a)) discover and report the customer's unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration. If there is a preclusion under this subsection, the payor bank may not recover for breach of warranty under Section 4-208 with respect to the unauthorized signature or alteration to which the preclusion applies.

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Overview of Funds Availability Rules:

Article: Funds Availability Overview
Author: Tracey George

The Bank's Obligation to Pay Checks:

A payor bank has an affirmative obligation (to the drawer) to pay an item when funds are available to cover the item. The bank is not obliged to pay a stale check (more than six months old) but may pay in good faith. The removal of the obligation to pay (the focus of this assignment) does not remove the right to pay (the focus of the previous Assignment).

When Are Funds Available for Payment?

  1. Time of evaluation: The bank is free to determine whether the account has sufficient funds "at any time between the time the item is received by the payor bank and the time that the payor bank returns the item" and no more than one determination need be made. 4-402(c)

    A redetermination of the account balance "made for the purpose of reevaluating the bank's decision to dishonor the item is determinative of whether a dishonor for sufficiency of available funds is wrongful."

  2. Availability: Depends on (1) what type of deposit, (2) what type of withdrawal, and (3) any special characteristics.

    • Expedited Funds Availability Act of 1987: The Board of Governor's of the Federal Reserve System has issued a detailed regulation to implement the Expedited Funds Availability Act normally referred to as Regulation CC. (12 CFR 229)

    • Regulation CC (12 CFR Part 229)

      1. 229.10 Next day availability

      2. 229.12 Permanent availability schedule

      General 2-Day and 5-Day Rules: Assuming the baseline of a non-cash withdrawal on a local check deposit (business day 1=$100, business day 2=remainder), a cash withdrawal makes $400 available on the next day of availability but adds 1 day before the remainder of the funds are available (229.12(d)) AND a non-local check deposit adds four days to the next day of availability (229.12(c)).

    • Matrix of 4 separate rules from answers to 2 questions:
      1. Local or nonlocal check?

      2. Use funds directly or indirectly?

    • Special low risk items: cash, checks drawn on a local branch of depositary bank, U.S. Treasury Checks, U.S. Postal Service money orders, checks drawn on a Federal Reserve Bank or Federal Home Loan Bank, checks drawn on the local state government or a local government in the state, and cashier's/teller's checks. $100 next day rule does not apply because it is part of the same subsection (229.10(c)). Deposits to teller available next day. If a special low risk item (other than a check drawn on a local branch of the depositary bank) is deposited in an account held by someone other than a payee of the check, the check loses its special status and receives the same treatment that it would have received it if had not been special item. (229.10(c) specifies to an account held by payee and 229.12(b)(2)-(4) sets forth it should be treated like local check or non local 229.12(c)(1)(ii)).

    • ATM Rules:
      1. Proprietary - same as teller except for special low risk items (other than US treasury checks or depositary bank local branch checks). 229.10(2) (applies to (c)(1)(ii) - (v) only) & 229.10 (cash deposit rule limited to deposits in person to teller)

      2. Non proprietary - 229.12(f) 5th day
    • 229.13 Exceptions:
      1. Banks can limit severely the availability of funds in a new account (less than 30 days old) 229.13(a)(2). Completely immune from two-day and five-day rules.
      2. Checks that exceed $5000 on any single banking day, even if the deposits include government-issued checks or other low-risk items are immune to 2-day and 5-day rules. The bank can defer the availability of the sums beyond the first $5000 until the check actually clears.

      3. Banks can limit severely availability of funds in an account that has had repeated overdrafts in the last 6 months.

      4. Banks also can defer availability if the bank "has reasonable cause to believe that the check is uncollectible." Cannot make class-wide distinctions.
    • Electronic payments are available the business day after banking day on which e.p. received (payment in finally collected funds AND info on account & amount to be credited).

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South Carolina Banks:

SC Associations:

Local:

Statewide:

Multi-state banks:


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South Carolina Credit Unions:

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State Banking Associations:

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