Financial Institutions:

Time Limits on Holding Deposits Generally Met but More Oversight Needed

GGD-91-132: Published: Sep 30, 1991. Publicly Released: Sep 30, 1991.

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Pursuant to a legislative requirement, GAO evaluated the implementation and administration of the Expedited Funds Availability Act (EFAA), which limits the length of time that financial institutions can hold funds from checks deposited into customer accounts, focusing on the Federal Reserve Board's (FRB) efforts to establish examination procedures and monitor the act's compliance.

GAO found that: (1) FRB has established a regulatory and administrative framework and a council of regulatory agency representatives to provide for the effective implementation of the act; (2) since selected examination and complaint files do not identify excessive check holding practices, GAO believes that financial institutions are generally complying with the act's funds availability schedules; (3) although the most frequent violations identified usually pertained to disclosure requirements, additional clarification of the act's provisions may be needed to achieve greater compliance; (4) while FRB examinations reviewed were thorough, other regulators did not follow the uniform examination procedures for testing check holds to ensure that the institutions' hold practices were consistent with their hold policies; (5) documentation of the procedures that the examiners followed in reviewing compliance with the act and in supporting their conclusions varied widely and was often limited or nonexistent; (6) the 33 financial institutions contacted were concerned about their exposure to check fraud loss, but did not believe it would be cost-effective to collect data on fraud losses attributable to the act because of the difficulty of isolating fraud losses that occurred as a result of the act's availability schedules; and (7) it could not determine the extent to which losses could be further alleviated through technological or operational improvement to institutions' check collection and return systems.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: OTS worked with the other regulators through FFIEC to revise EFAA exam procedures. The guidelines have been updated to include minor changes and have been revised in that management or policy-related procedures have been separated from operations review procedures. Guidance was issued in July 1992.

    Recommendation: For better administration of EFAA, FRB, the Comptroller of the Currency, the Chairman of the Federal Deposit Insurance Corporation, the Director, Office of Thrift Supervision, and the Chairman of the National Credit Union Administration should collectively evaluate their examination experience under the act and review the FFIEC uniform examination guidelines to identify procedures that they consider essential for assessing compliance with EFAA funds availability provisions. Those procedures should include guidance on: (1) the extent of testing of various types of transactions needed to ascertain compliance; and (2) the type and extent of documentation needed to support the examiners' conclusions and facilitate supervisory review. The procedures deemed essential should then be incorporated into each agency's compliance examination handbook or manual, and examiners should be required to use them during subsequent examinations.

    Agency Affected: Department of the Treasury: Office of Thrift Supervision

  2. Status: Closed - Implemented

    Comments: OCC worked with other regulators through FFIEC to revise EFAA exam procedures. Guidelines have been updated to include minor changes and have been revised in that management or policy related procedures have now been separated from operations review procedures; however, guidance contains no date, but was sent out in April, 1992.

    Recommendation: For better administration of EFAA, FRB, the Comptroller of the Currency, the Chairman of the Federal Deposit Insurance Corporation, the Director, Office of Thrift Supervision, and the Chairman of the National Credit Union Administration should collectively evaluate their examination experience under the act and review the FFIEC uniform examination guidelines to identify procedures that they consider essential for assessing compliance with EFAA funds availability provisions. Those procedures should include guidance on: (1) the extent of testing of various types of transactions needed to ascertain compliance; and (2) the type and extent of documentation needed to support the examiners' conclusions and facilitate supervisory review. The procedures deemed essential should then be incorporated into each agency's compliance examination handbook or manual, and examiners should be required to use them during subsequent examinations.

    Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency

  3. Status: Closed - Implemented

    Comments: FDIC worked with the other regulators through FFIEC to revise EFAA exam procedures. The guidelines have been updated to include minor changes and have been revised in that management or policy procedures have been separated from operations review procedures. FDIC guidance was issued May 21, 1992.

    Recommendation: For better administration of EFAA, FRB, the Comptroller of the Currency, the Chairman of the Federal Deposit Insurance Corporation, the Director, Office of Thrift Supervision, and the Chairman of the National Credit Union Administration should collectively evaluate their examination experience under the act and review the FFIEC uniform examination guidelines to identify procedures that they consider essential for assessing compliance with EFAA funds availability provisions. Those procedures should include guidance on: (1) the extent of testing of various types of transactions needed to ascertain compliance; and (2) the type and extent of documentation needed to support the examiners' conclusions and facilitate supervisory review. The procedures deemed essential should then be incorporated into each agency's compliance examination handbook or manual, and examiners should be required to use them during subsequent examinations.

    Agency Affected: Federal Deposit Insurance Corporation

  4. Status: Closed - Implemented

    Comments: Because the Federal Reserve has routinely complied with the EFAA exam procedures, it does not plan to change its approach. The Federal Reserve did work with the FFIEC on the guidelines. The guidelines have been updated through minor changes.

    Recommendation: For better administration of EFAA, FRB, the Comptroller of the Currency, the Chairman of the Federal Deposit Insurance Corporation, the Director, Office of Thrift Supervision, and the Chairman of the National Credit Union Administration should collectively evaluate their examination experience under the act and review the FFIEC uniform examination guidelines to identify procedures that they consider essential for assessing compliance with EFAA funds availability provisions. Those procedures should include guidance on: (1) the extent of testing of various types of transactions needed to ascertain compliance; and (2) the type and extent of documentation needed to support the examiners' conclusions and facilitate supervisory review. The procedures deemed essential should then be incorporated into each agency's compliance examination handbook or manual, and examiners should be required to use them during subsequent examinations.

    Agency Affected: Federal Reserve System: Board of Governors

  5. Status: Closed - Implemented

    Comments: Revised guidance has been sent to the field offices; however, the estimated time for formal revision of the Examiner's Guide has been changed to April 1993.

    Recommendation: For better administration of EFAA, FRB, the Comptroller of the Currency, the Chairman of the Federal Deposit Insurance Corporation, the Director, Office of Thrift Supervision, and the Chairman of the National Credit Union Administration should collectively evaluate their examination experience under the act and review the FFIEC uniform examination guidelines to identify procedures that they consider essential for assessing compliance with EFAA funds availability provisions. Those procedures should include guidance on: (1) the extent of testing of various types of transactions needed to ascertain compliance; and (2) the type and extent of documentation needed to support the examiners' conclusions and facilitate supervisory review. The procedures deemed essential should then be incorporated into each agency's compliance examination handbook or manual, and examiners should be required to use them during subsequent examinations.

    Agency Affected: National Credit Union Administration

  6. Status: Closed - Implemented

    Comments: FRB provided a copy of the guidance pamphlet entitled "A Guide to Regulation CC Compliance" which was issued at the end of 1992. The pamphlet highlighted EFAA requirements that have caused the most compliance problems and provided availability rule examples to improve compliance by institutions.

    Recommendation: For better administration of EFAA, FRB should issue supplementary guidance that highlights and illustrates the most frequently violated EFAA provisions to enhance financial institutions' compliance with EFAA.

    Agency Affected: Federal Reserve System: Board of Governors

 

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