Reasonable Cause Examples of Insufficient Reasonsīefore we discuss some examples of acceptable “reasonable cause” special exception hold reasons, I think it is important to rule out a couple of reasons that I have seen repeatedly result in violations at financial institutions.įirst, I have seen a number of violations result when a financial institution uses an “other” reason of “unable to verify funds.” In these cases, my conversations with tellers and managers have revealed that the “reasonable cause” hold reason was invoked because the teller was unable to verify funds from the paying bank. Due to this gray line in the guidance, it is important for financial institutions to err on the side of caution and take a conservative approach to this rule. The problem with this subjectivity, however, is that this is the test that would be used in a court proceeding. The reason for the bank's belief that the check is uncollectible shall be included in the notice required under paragraph (g) of this section.”Īs you can see, the rule says that the “reasonable cause” hold can be invoked if there are “facts that would cause a well-grounded belief in the mind of a reasonable person.” As we all know from our relationships with family and friends, this statement about a “well-grounded belief in the mind of a reasonable person” is extremely subjective. Such belief shall not be based on the fact that the check is of a particular class or is deposited by a particular class of persons. Reasonable cause to believe a check is uncollectible requires the existence of facts that would cause a well-grounded belief in the mind of a reasonable person. Sections 229.10(c) and 229.12 do not apply to a check deposited in an account at a depositary bank if the depositary bank has reasonable cause to believe that the check is uncollectible from the paying bank. Part of the reason for the confusion behind this reason is that Regulation CC is somewhat ambiguous in the rule: While this may seem straightforward upon first thought, it is actually a bit more complicated that it should be. The reasons for this, of course, is that the “reasonable cause” hold reason must be accompanied with an actual reason as to why a financial institutions believes a check will not be paid. Unlike some of the other reasons which are more straightforward, the “reasonable cause” hold reason is a bit more complex than the others and often results in violations. “Reasonable cause to doubt collectibility” is one of six special “exception” reasons permitted under 229.13 of Regulation CC. An Overview of the Reasonable Cause to Doubt Collectibility Hold Reason Often times, there isn’t a pattern or practices as to why these violations occur - other than a lack of training - though I have noticed a trend of violations relating to one specific special exception hold reason: The reasonable cause to doubt collectibility. These violations result from a number of things, such as incorrectly calculating the amount of a hold or incorrectly choosing the wrong date to make funds available. In auditing check holds over the years, I have often found violations of of Regulation CC.
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