Regulation CC Inflation Adjustments
Written By David Park, Regulatory Compliance Counsel
On Monday, the CFPB and the Federal Reserve Board issued a final rule regarding inflation-based adjustments to the dollar amounts required by the Expedited Funds Availability Act (EFA Act) and Regulation CC - the EFA Act's implementing regulation. The final rule follows the proposed rule that was issued back in December 2018.
The adjustments are required by Dodd-Frank: Section 1086(f) of the Dodd-Frank Act added language to the EFA Act requiring that the dollar amounts included in the EFA Act shall be adjusted every five years after December 11, 2011 by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) rounded to the nearest multiple of $25. See, 12 USC § 4006(f).
This final rule provides for a new section 229.11 to be added to Regulation CC. Section 229.11(b) describes the methodology that will be used to adjust the dollar amounts included in the EFA Act every five years. This initial adjustment used the aggregate percentage change in the CPI-W from July 2011 to July 2018 as the basis for the adjustments. Going forward, the aggregate percentage changes in the CPI-W will be measured from the end of the previous period through July five years from that endpoint. So, the next adjustment will use the aggregate percentage change in the CPI-W from July 2018 to July 2023.
To get the adjusted amount, proposed section 229.11(b)(3) calls for the existing dollar amounts to be multiplied by the aggregate percentage change in the CPI-W for the index period and rounded to the nearest multiple of $25. Footnote 19 in the final rule demonstrates how the adjustment works in practice:
"For example, if the CPI-W in July of Year X and in July of Year X+5 were 100 and 114.7, respectively, the aggregate percentage change that results from the change in the CPI-W would be 14.7%. If the applicable dollar amount in the regulation was $200 for the prior period, then the adjusted figure in the regulation would become $225, because the calculated change of 14.7% of $200, which is $29.40, results in rounding to $225 as that would be the nearest multiple of $25."
Proposed section 229.11(a) specifies which dollar amounts will be adjusted every five years:
- section 229.10(c)(1)(vii) [$200 rule for check deposits not subject to next-day availability];
- section 229.12(d) [$400 rule for cash withdrawal for local checks and checks deposited at nonproprietary ATMs];
- section 229.13(a) [new account exception hold];
- section 229.13(b) [large deposits exception hold];
- section 229.13(d) [repeated overdrafts exception hold]; and
- section 229.21(a) [civil liability].
And proposed section 229.11(c) provides the adjusted amounts:
- the $100 referenced in section 229.10(c)(1)(vii) will become $225 (this is for the $200 rule that is currently in effect for check deposits not subject to next-day availability even though the text of Regulation CC still references the $100 amount);
- the $400 referenced in section 229.12(d) will become $450;
- the $5,000 referenced in sections 229.13(a), 229.13(b), and 229.13(d) will become $5,525; and
- the $100, $1,000, and $500,000 referenced in section 229.21 will become $100, $1,100, and $552,500, respectively.
What is kind of confusing is that the $100 amount referenced in section 229.21(a)(2)(i) was changed to $225 by an amendment to section 229.21 itself outside the changes referenced in new section 229.11.
The effective date for these changes is July 1, 2020. With respect to the second adjustment, which would be effective July 1, 2025, and the third adjustment, which would be effective July 1, 2030, the CFPB and the Federal Reserve Board anticipate publishing the adjustments in the first half of the year preceding the effective dates (i.e., 2024 and 2029).
The CFPB and the Federal Reserve Board indicated that the gap between the publication of the adjustments and the effective date provides financial institutions with time to figure out how best to communicate any potential change-in-terms to any affected customers such that the institution can minimize the financial burdens that might arise. Section 229.18(e) requires that financial institutions provide at least 30 days advance notice to consumer account holders before implementing a change to an institution's availability policy "except that a change that expedites the availability of funds may be disclosed not later than 30 days after implementation." Because of the potential changes in these amounts, it is certainly possible that a financial institution might need to provide some type of notice to consumers based on the adjusted amounts and section 229.18(e).
Those of you that read the proposed rule might remember that the proposed rule also requested comments on certain amendments to the funds-availability rules proposed in 2011. Among other things, the 2011 proposal related to proposed amendments to facilitate electronic check collection and return and to revise the funds availability schedule and model forms. In footnote 13 of the final rule, the CFPB and the Federal Reserve Board advised that they were not addressing those particular comments in this final rule.
NAFCU's Regulatory Affairs team is working on a final regulation that will provide a more thorough section-by-section analysis, so look for that in the near future.