What Is Expedited Funds Availability Act?
The Expedited Funds Availability Act (EFAA) is a United States federal law that dictates the maximum amount of time a financial institution can hold deposited funds before making them available to a customer. Enacted to standardize the use of deposit holds by commercial banks, the EFAA falls under the broader category of banking regulations designed to enhance consumer access to their money. The EFAA sets forth specific schedules for when funds must be available, aiming to prevent excessive delays that were common before its implementation. It requires banks to provide clear disclosures regarding their funds availability policies to customers.20
History and Origin
Before the EFAA, consumers often faced lengthy and inconsistent hold periods on deposited checks, sometimes waiting weeks for funds to become available. This practice created significant inconvenience and financial hardship, as individuals could not access their own money even after it had been credited to their deposit account. In response to widespread concerns, the U.S. Congress passed the Expedited Funds Availability Act in 1987.19 This landmark legislation aimed to address these delays by establishing clear rules for check holds and expediting the check clearing process. The Federal Reserve Board was tasked with implementing the EFAA through its Regulation CC, which outlines the specific availability schedules and disclosure requirements for banks.18
Key Takeaways
- The Expedited Funds Availability Act (EFAA) sets maximum hold periods for various types of deposits made into bank accounts.
- It requires financial institutions to disclose their funds availability policies to their customers.
- The Federal Reserve's Regulation CC implements the EFAA, providing detailed rules and exceptions.
- The EFAA aims to protect consumers by ensuring timely access to their deposited funds.
- Certain deposits, such as cash and U.S. Treasury checks, generally have faster availability under EFAA.
Interpreting the Expedited Funds Availability Act
The Expedited Funds Availability Act is interpreted through Regulation CC, which outlines specific timelines for funds availability based on the type of deposit and other factors. For instance, cash deposits made in person to an employee of the bank, and most direct deposits or wire transfers, generally must be made available on the next business day after the banking day of deposit.17 For check deposits, the rules are more nuanced. The EFAA stipulates that the first $225 of a check deposit must generally be available by the next business day.16 The remaining funds from a check deposit, depending on the type of check (e.g., U.S. Treasury check, cashier's check) and the location of the bank, may be available on the second business day or up to several business days later. Banks must inform customers of their specific funds availability policies and provide notice if an extended hold is placed on a deposit.15
Hypothetical Example
Consider a customer, Sarah, who deposits a personal check for $1,000 into her checking account at her local bank on a Monday.
- Next Business Day Availability: Under the Expedited Funds Availability Act, her bank must make at least the first $225 of her deposit available for withdrawal by Tuesday morning.14
- Subsequent Availability: The remaining $775 would typically be available on the second business day (Wednesday), assuming it's a local check and no exceptions apply. If the check were from an out-of-state bank or subject to an exception, the full amount might be available later, possibly up to seven business days.
- Disclosure: If the bank decides to place an extended hold on the funds due to a specific reason (e.g., a large deposit exception), they must notify Sarah, providing the reason for the hold and indicating when the funds will become available.
This example illustrates how the EFAA ensures that at least a portion of the funds is quickly accessible, while also setting clear expectations for the availability of the full deposit.
Practical Applications
The Expedited Funds Availability Act has broad practical applications across the U.S. financial system, primarily impacting consumer protection and bank operations. For consumers, it provides certainty and quicker access to their money, reducing the financial strain that prolonged check holds once caused. It mandates that banks adhere to specific schedules for making funds available, thereby promoting uniformity in banking practices.13
For banks, the EFAA, implemented via Regulation CC, provides a framework for managing risk associated with check clearing. While it expedites funds availability, it also outlines situations where banks can impose extended holds, such as for large deposits (generally over $5,000), new accounts (under 30 days old), or if there is reasonable cause to doubt the collectability of a check.12 This regulatory balance helps banks mitigate potential losses from unpaid checks while still serving customer needs. The EFAA also facilitated advancements in payment processing, notably through the Check Clearing for the 21st Century Act (Check 21), which enabled banks to process checks electronically through substitute check technology, further speeding up the system.11 The Act ensures that financial institutions consistently disclose their funds availability policies, promoting transparency. Information on compliance and customer rights is often made available by regulatory bodies like the Office of the Comptroller of the Currency.10
Limitations and Criticisms
Despite its benefits, the Expedited Funds Availability Act does have limitations. While it significantly reduced general check hold times, it still permits banks to place extended holds under certain "exception" conditions. These exceptions include deposits to new accounts (open less than 30 days), large deposits (over a certain threshold, currently $5,525), checks that have been returned unpaid and redeposited, or accounts that have been repeatedly overdrawn.9 Furthermore, banks may place holds if they have reasonable cause to doubt the collectability of a check, such as suspected fraud or if the check appears altered.
Critics argue that these exceptions, while necessary for bank risk management, can still cause inconvenience for consumers, particularly those who are more financially vulnerable. For example, a customer experiencing an overdraft might face a longer hold on a subsequent deposit, exacerbating their financial difficulties. Academic discussions have examined the balance between consumer access and bank risk, noting that while the EFAA provided significant consumer benefits, it also highlighted ongoing challenges in payment system efficiency and the potential for regulatory methods to influence market behavior.8 The act does not eliminate hold times entirely, and some consumer advocates continue to push for further reductions in availability periods.
Expedited Funds Availability Act vs. Funds Availability
The Expedited Funds Availability Act (EFAA) is a specific federal law that governs funds availability for deposits made into transaction accounts. Funds availability, as a general concept, refers to the time it takes for deposited money to become accessible for withdrawal or use by the account holder. Before the EFAA, funds availability varied widely among banks and could involve lengthy, unpredictable hold periods.
The EFAA was enacted precisely to standardize and expedite these availability times by setting maximum permissible hold periods. Therefore, while "funds availability" is the broad banking concept of when money is usable, the "Expedited Funds Availability Act" is the legislative framework that regulates and largely shortens those periods, providing consumer protections and clarity. It transformed what was once a discretionary bank practice into a regulated obligation.
FAQs
What is the primary purpose of the Expedited Funds Availability Act?
The primary purpose of the Expedited Funds Availability Act (EFAA) is to ensure that banks make deposited funds available to customers within specific, standardized timeframes and to reduce the lengthy hold periods that were common before its enactment.6, 7
How quickly must funds be made available under the EFAA?
Generally, cash deposits and certain types of checks (like U.S. Treasury checks) must be available on the next business day. For most other check deposits, the first $225 must be available on the next business day, with the remainder typically available on the second business day, although longer holds apply under specific exceptions.4, 5
Can a bank hold my check for more than a few days?
Yes, under certain circumstances known as "exceptions," banks are legally permitted to place longer holds on deposits. These exceptions include large deposits (over $5,525), deposits into new accounts (open less than 30 days), redeposited checks, or if the bank reasonably suspects the check may not clear.3
What is Regulation CC and how does it relate to the EFAA?
Regulation CC is the Federal Reserve Board's regulation that implements the Expedited Funds Availability Act. It provides the detailed rules, schedules, and disclosure requirements that banks must follow to comply with the EFAA.2
What should I do if my bank holds my funds longer than expected?
First, consult your bank's funds availability policy, which they are required to provide. If you believe a hold is improper or exceeds the limits set by the Expedited Funds Availability Act and Regulation CC, you can contact your bank directly to inquire. If unsatisfied, you may consider filing a complaint with the appropriate regulatory agency, such as the Consumer Financial Protection Bureau (CFPB) or the Office of the Comptroller of the Currency (OCC).1