Regulation CC Holds – Reasonable Cause
Regulation CC allows you to place an exception hold on a check when you have a …reasonable cause to believe that the check is uncollectible from the paying bank. It further states that “reasonable cause” requires the existence of facts that would cause a well-grounded belief in the mind of a reasonable person” that the check is uncollectible.
This general principle really isn’t all that clear. While bankers are pretty reasonable people, it’s important to understand that what might lead one person to doubt collectibility of a check may not necessarily lead another person to the same conclusion. This is why it is crucial to rely on facts when placing a hold for reasonable cause. If you can’t demonstrate why you believe a check may not be paid, you shouldn’t use this reason. For example, simply having a gut feeling that a check won’t clear is not sufficient grounds for placing a reasonable cause hold. On the other hand, if the check shows visible signs of alteration or discrepancies in the signature, these would be valid reasons to doubt collectibility.
The Regulation does provide examples (see Model Form C-13 Reasonable Cause Hold Notice) of some common reasons for doubting collectibility that could be utilized. In the real world, however, you are likely going to encounter reasons that fall outside these examples. Most hold notice forms typically include an “other” box where you can write in a reason for the hold. This is not an “anything goes” option and it’s quite common to see employees getting a little too creative. We often advise our clients to avoid using “other” whenever possible. If you must use it, any reason you provide should be clearly explained or backed up with supporting documentation.
A common question we receive is, “If I call the paying bank and they refuse to verify whether the check will clear, can I place a hold?”. The answer is no. A refusal to verify funds is not the same thing as confirmation that the check will not clear at that time. The paying bank could simply have a policy against verifying funds, which doesn’t necessarily indicate there’s an issue with the check itself.
Published
2025/04/15
Amy Kudlacek
Amy brings many years of banking and compliance experience to Banker’s Compliance Consulting. She has worked for both large and small financial institutions and spent time working in every area of a bank. She started out as a teller in college and eventually became a branch manager. Her love, however, was always compliance. Amy began her career with Banker’s Compliance Consulting in 2000. Her knowledge and experiences have allowed her to develop a well-rounded and practical approach to regulatory compliance. Amy is CRCM certified, has a Bachelors Degree in Business Administration and is a graduate of the ABA Compliance School. Amy & her husband have two children at home and stay busy following their activities. They spend a lot of time in the bleachers!