What Is Regulation CC? Definition, Purpose, and How It Works

Regulation CC is a Federal Reserve rule that implements the Expedited Funds Availability Act (EFAA) and the Check Clearing for the 21st Century Act (Check 21). It sets standards for how quickly banks must make deposited funds available to customers and for efficient check collection and processing.

Key takeaways

• Regulation CC requires banks to disclose when deposited funds will be available for withdrawal.
• It established maximum hold periods for deposited checks and accelerated check-return and settlement rules.
• Check 21, implemented under Regulation CC, enabled electronic check processing and the use of legally equivalent substitute checks.
• The rule helped convert interbank check collection to an electronic system and reduced paper-processing operations.

Purpose and background

Congress passed the EFAA in 1987 because banks were placing long holds on deposited checks, delaying customer access to funds. Regulation CC put the EFAA’s disclosure and funds-availability provisions into effect and directed the Federal Reserve to adopt rules to speed check returns and settlements. Later, Check 21 removed legal barriers to electronic check processing and introduced substitute checks as valid paper equivalents.

How Regulation CC works

Regulation CC contains several interrelated components:
* Funds-availability schedules and disclosure requirements: Banks must provide account holders with clear notices showing when different types of deposits will be available.
* Check-return rules: The regulation shortens the time banks have to return unpaid checks, helping depository banks identify and respond to returned items more quickly.
* Same-day settlement rules: These reduce timing disparities between private banks and reserve banks when checks are presented for payment.
* Electronic processing and substitute checks (Check 21): Banks can transmit check images electronically to partner banks or send a substitute check to banks without electronic agreements. This allows predominantly electronic interbank check collection.

What Regulation CC requires of banks

• Provide written disclosures to customers about deposit availability schedules.
• Make certain deposits available within specified maximum time frames (examples below).
• Promptly return unpaid checks to the paying bank.
• Accept and process electronic check images and substitute checks under the Check 21 framework.

How Regulation CC protects depositors

Regulation CC gives depositors predictable access to funds and requires banks to tell customers when holds will end. Examples:
* Cash deposits: must be available no later than the business day after the business day on which they were deposited.
* Government checks and many other check types have similar availability rules; banks must disclose specific schedules.

Operational impact on the banking system

By permitting electronic check transmission and substitute checks, Check 21 allowed most interbank check processing to become electronic. This reduced processing errors, sped up clearing, and enabled the Federal Reserve to consolidate paper-check processing offices significantly.

Typical clearing times

For checks collected through the Federal Reserve, institutions’ accounts are credited and debited as checks are processed. Most checks are collected and settled within one business day, though specific timing depends on the check type and processing method.

Bottom line

Regulation CC standardizes when deposited funds must be made available and requires banks to disclose availability schedules. It also modernized the U.S. check-collection system through rules that encourage electronic processing and substitute checks, improving speed, accuracy, and efficiency for banks and customers alike.