What laws govern check clearing in the US?

Question

When I deposit a check in my bank, the bank credits the first $100 of the sum immediately and the rest of the sum is credited the next day, usually. I know that it's not a real clearing - i.e. if the check happens to be bad (never happened to me, but so I heard) it can come back a long time after and the funds will be taken back. My questions here are:

1. What are the laws/regulations about the crediting of the checks? I.e. is there some rule that says to my bank "you must credit the account in X days" or they just decide however is convenient for them?
2. Is there any official period after which the check becomes "final" - i.e. one can be sure that the transaction is never reverted because the check owner's bank has approved it? Is there any time limit by law/regulation that governs that?

Answer 1

The Expedited Funds Availability Act is your source of information.

I'm generally reluctant to use Wikipedia as a resource, but they do have a handy table of holds and availability: http://en.wikipedia.org/wiki/Expedited_Funds_Availability_Act

If you want it from the horse's mouth, see section 603 of the Expedited Funds Availability Act: http://www.fdic.gov/regulations/laws/rules/6500-3240.html

With regards your second question, it's final once cleared unless there is "fraud" involved. It looks - although I can't find an authoritative source - like banks can dishonour checks several years after deposit when fraud is involved. If I can find a source I'll edit this post.

Answer 2

The direct answer to the question "Is there some law or regulation however how soon is should be 'cleared'?" is:

Availability of Funds and Collection of Checks is subject to Regulation CC which a mandate passed by congress and enforced by the Federal Reserve Bank. The time periods mandated under such regulation are "maximum allowable periods" that a process may take. Your bank may opt to shorten those periods either as a matter of general policy or on a case by case basis.

Please note that "Check 21" is only part of what is described (and linked) above as as Reg-CC, it was added thereupon as an efficiency enhancement by way of reducing physical paperwork passing through the system which in one way, is done by using substitute electronically issued checks. As a result, all checks can now be considered local checks with regards to associated bank holding periods.

Answer 3

There may be cases when your financial institution may delay funds availability due to large check amount; however, this information should be disclosed in your deposit terms & conditions that state how a check is cleared.

All this is governed by Reg CC.