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Improper Holds on Business Account Deposits
I am a business customer at a large national bank. I have had my account with them for twelve years and have an average balance of $50,000, plus an overdraft protection account and a line of credit.
Last March, one of our employees neglected to make a deposit in a timely manner. This resulted in nine returned items against our account before we figured out what was happening. The bank now places holds on all of our deposits. This week we made a $26,000 deposit and the bank held $5,000 for two days and $19,000 for ten additional days. When I spoke to the branch manager, she indicated we had poor performance on our account and they have the right to place holds on deposits as they see fit.
I brought a copy of the largest check deposited (over $18,000 of the entire deposit) so she could call the issuing bank to ensure the funds are available. She refused. She also indicated the sole reason for placing the hold on our deposits is our poor banking record in the previous year and is the result of our actions, not the result of concern about our deposits clearing.
I believe banking regulations support holding a portion of funds for five days and maybe even ten days to ensure funds will clear. My questions are:
- Can the bank hold funds for what seems to be a punitive measure?
- Is there any limit to the amount of the deposit the bank can hold?
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 There is a federal regulation on Funds Availability, and it applies to business and consumer accounts. For your bank to legally place holds of the duration you are describing, it would have to be exercising its right to impose exception holds on deposits. These can be for up to seven business days for local items and eleven business days for non-local items.
There are two legitimate hold reasons that might apply in your situation. First, a bank can place exception holds on the entire amount of checks deposited above $5,000 on any business day. The hold, as noted, could be for up to seven or eleven business days (separate holds for seven and eleven days could be placed, based on the breakdown of your deposit into local and non-local items). If the bank places this kind of hold, it's obliged to provide you a notice of the hold at the time of deposit or by the next business day.
Another reason a bank could impose an exception hold is a depositor's history of repeated overdrafts. If a depositor has been overdrawn during the immediately previous six months by $5,000 or more on for least two banking days, or overdrawn at all on at least six banking days (in that six month period), the bank can provide a one-time notice that deposited checks will be held. Again, the hold (this time with no availability of the first $5,000) can be for up to seven or eleven business days.
Seven business days is roughly nine calendar days, and eleven business days is sixteen calendar days (more, if a holiday is involved). If the only overdraft event on your account was eleven months ago, the bank cannot use the "repeat overdraft" reason for a hold. A more detailed response would require very detailed information on the makeup of your deposits and a review of your bank account records, but based on the information you've supplied, your bank may not be adhering to the regulation's requirements.
Published on BankingQuestions.com 1/16/07
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