What Is Deferred Availability?
In finance, the term deferred availability refers to a delay in the processing a recently deposited check.
In order to avoid fraud that involves cashing bad checks before they are cleared, regulations exist which limit the amount of time until a deposited check has been processed.
- Deferred availability refers to the period of time between when a check is deposited and cashed.
- Regulations exist which limit the amount of time in which availability can be deferred.
- Banks can receive extensions to these limits under certain circumstances, such as when the deposit was delayed due to a system failure or power outage.
Understanding Deferred Availability
The rules relating to the processing speed of newly deposited checks are set out in Regulation CC of the Federal Reserve. This regulation is responsible for implementing the standards set out in the Expedited Funds Availability Act (EFAA), which was enacted by Congress in 1987.
According to these regulations, banks are prohibited from keeping checks on hold for more than two days, in the case of local checks, or five days for out-of-town checks. Since 2010, however, these regulations have been further simplified as all checks deposited within the United States are now considered "local checks" for the purposes of this provision.
The intention behind these regulations was to deter fraud and embezzlement schemes. In many such schemes, the perpetrators exploit the delay between when a check is deposited versus when it is processed and cashed by the bank. Through Regulation CC, the window of opportunity for such fraud is minimized.
Although the standard limit for hold periods is two days for most deposits, there are exceptions available which allow banks to hold checks for seven days or longer. For example, banks may defer the availability of deposits made to new accounts for up to nine business days. However, if the holder of the new account has aother account at that bank that has been open for more than 30 days, the new account hold may not be placed.
Banks may also defer the availability of large deposits in excess of $5,000. This applies to deposits of a single instrument valued at $5,000 or more as well as aggregate deposits totaling more than $5,000. A bank may defer the availability of the entire deposit until the seventh business day.
Real World Example of Deferred Availability
Another example of where banks can obtain extensions to the standard two-day deferred availability rules are when the deposit in question is suspected of fraud. In those situations, the bank can can defer the availability of funds.
The bank may also do so if the account in question has a history of overdrafts. Regulation CC requires an account to have been overdrawn for at least six business days out of the previous six months or two business days if the overdraft amount was more than $5,000.
Lastly, some other conditions in which banks can defer the availability of deposited funds include situations where the deposit in question is based on an image replacement document (IRD) of a check which was previously rejected or when the deposit took place at a time when the bank was unable to function normally, such as due to a system failure or power outage.