Oregon State Bar Bulletin — JUNE 2006

Bar Counsel
Waiting for 'Go' Dough:
A primer on disbursing client funds

By Sylvia Stevens

One of the frustrating aspects of trying to offer assistance to lawyers about compliance with the Oregon Rules of Professional Conduct is, on occasion, not having an answer or even a suggestion about where the lawyer might look for an answer. A question that has put me in that situation a number of times over the years is "How soon can I disburse settlement funds to my client?" While Oregon RPC 1.15-1 exhorts us to safeguard client funds, it offers no instructions on how to actually do it, beyond the basics of segregation, notification, prompt delivery and accounting on request.

Cash settlements are rare; most settlement funds arrive in a lawyer’s office in the form of a check or draft. As we all learned in law school, a check is only a "promise to pay." Until the payor’s funds have actually arrived at the payee’s bank (as "collected funds"), the settlement has not been paid. Accordingly, if a lawyer disburses the settlement funds too soon, the disbursement will overdraw the trust account or draw against the funds of some other client. Neither is a desirable outcome.

Years ago when I was in private practice, my firm had a rigorously-adhered-to policy that no disbursement was made until at least 10 business days after the check was deposited. Presumably, that was the typical amount of time it would take for the deposit to become "collected funds" in the firm’s trust account. Based on purely anecdotal information, I believed that this was common practice in the legal community. Moreover, it made sense to me. As a result, I suggested to lawyers who asked how soon they could disburse funds that they should wait 10 business days unless they could get satisfactory assurances from their friendly banker that a shorter time was safe.

Of course, in the real world (where, as I am constantly reminded, I don’t work), clients don’t want to wait 10 business days for their money. It has been a long time coming, they need the money and waiting just isn’t in their plans. Lawyers are caught between their duty of prompt delivery and their obligation to ensure that they don’t draw against uncollected funds or against the funds of other clients.1

This issue was highlighted recently in an unsatisfying discussion with a lawyer who wanted assurance that he could disburse his client’s funds immediately, and who suggested that the bar should craft a rule creating a "safe-harbor" for lawyers in this situation. I suggested that we already have a rule, Oregon RPC 1.15-1, and that lawyers have an obligation to familiarize themselves to some extent with banking law. Taking my own advice to heart, a few minutes of noodling on the Internet turned up "A Guide to Regulation CC Compliance" on the Federal Reserve’s website. Although designed to help financial institutions comply their legal obligations, it is written in understandable language and is a good primer on "funds availability" rules.2

A caveat is in order here. I am not and never have been a bank lawyer, and I profess no expertise in what I am confident is a more complex area than the aforementioned guide suggests. My purpose here is only to share some very basic information. Certainly, there is more to this subject than what you will read here and this is not intended as and shouldn’t be taken as authority on the topic. If you have questions about any of this information, I recommend further research or inquiry of your local banker.

Regulation CC sets out the maximum time3 a financial institution has for making funds available to customers, measured in "business days" after the "banking day" on which the deposit is made. Business days are Monday through Friday (excluding federal holidays); a banking day is any business day that the institution is open for substantially all of its activities. Note that Saturday is not a business day, even though it may be a banking day.

The following deposits have "next-day availability," meaning that the funds must be available on the first business day following the banking day of deposit:

1. Cash deposited in person;

2. Electronic payments deposited into an account;

3. U.S. Treasury checks;

4. U.S. Postal Service money orders deposited into an account of the payee;

5. Federal Reserve Bank or Federal Home Loan Bank checks into an account of the payee;

6. State or local government checks deposited into an institution in the payor’s state;

7. Cashier’s, certified or teller’s check deposited into an account of the payee;

8. Checks drawn upon the same institution if the branches involved are in the same state or check-processing region.

Next-day availability does not apply to ATM deposits of types 1, 4, 5, 6 or 7. Funds from those deposits must be available on the second business day if the ATM is owned by the depositor’s institution, otherwise by the fifth business day.

For checks not listed above, the availability schedule is determined by whether the check is "local" or "nonlocal." A check is "local" if the paying institution and the depositor’s institution are in the same check-processing region; funds from local checks must be made available by the second business day following the banking day of deposit. If the paying institution and the depositor institution are not in the same check-processing region, the check is "nonlocal," and funds must be made available by the fifth business day.4

One other rule worth noting: the first $100 of any deposit not already subject to "next day availability" must be available by the first business day after deposit. In other words, if you deposit a nonlocal check, the first $100 of the funds must be available the next business day, but the remainder need not be made available until the fifth business day.

Notwithstanding the next-day, two-day and five-day availability rules, institutions may delay for "a reasonable period of time" the availability of funds from certain types of deposits. A reasonable period is generally one additional business day (making a total of two) for checks drawn on the same institution, five additional business days (total of seven) for local checks, and six additional business days (total of 11) for nonlocal checks. An institution may impose longer exception holds, but has the burden of proving that the longer periods are reasonable.

Customers who make deposits in person must be notified at the time of deposit that the funds availability will be delayed; the notice must include an explanation for the delay and the date on which the funds will be available. If the deposit is not made in person, the notice and delay information must be mailed to the customer not later than the first business day after the banking day of the deposit.

The delay provisions of Regulation CC do not apply to funds from cash or electronic deposits. An institution may delay the availability of those funds in the following cases:

It is important to remember that funds availability rules and policies only govern when an institution must allow withdrawal of deposited funds. The availability of funds does not guarantee that the deposited item ultimately will be honored on presentment to the paying bank. The institution on which a check is drawn has 48 hours to dishonor any instrument presented for payment. If the depositor’s institution makes funds available before the payor institution has fully processed the check, there is yet a possibility that the check will be dishonored and the amounts charged back against the lawyer’s trust account.

All of this may be a long way of saying that my old "10-day" rule wasn’t so outdated after all, especially with nonlocal checks or those that present other collectibility issues. Although the funds availability rules tell us the earliest date that funds can be withdrawn after deposit, they don’t provide any guarantee that the check will actually be honored. Moreover, the funds availability rules govern banks, not lawyers managing their trust accounts. The "prompt delivery" requirement in Oregon RPC 1.15-1(d) does not mean that funds must be delivered before the funds are, in fact, collected. Lawyers risk violating the rule if funds are disbursed when they are available under Regulation CC but the check is subsequently dishonored. However, using the Regulation CC timelines will definitely reduce that risk.

A banker colleague points out that the only way to be absolutely certain that a check is good is to confirm with the paying bank. She admits, however, that bankers consider such requests to be an administrative "nightmare" and will generally only do it only when they feel they are vulnerable to a loss, such as when dealing with flaky clients or suspicious activity. She recommends the 10-business day rule as a good general practice except for funds that are received by wire transfer.

As with many disputes that arise between clients and lawyers, education and better communication may be the most important deterrent. Lawyers should inform clients early in the representation about the lawyer’s own funds availability rule so that when funds are received, the client will be aware of and understand the reason for the wait time. Understanding the applicable banking regulations, establishing one’s own policy and informing clients in advance are simple steps to assure compliance with our obligations as fiduciaries of our client’s funds.


1. This may be a more acute problem in real estate transactions closed by lawyers, which is apparently a common practice in many jurisdictions including South Carolina, North Carolina, Georgia and Florida. Those jurisdictions have either adopted or are considering the adoption of "good funds" laws or rules of professional conduct which purport to limit disbursement to collected or credited funds. The laws and rules are riddled with exceptions, however, which seem to boil down to allowing disbursement when the lawyer has a reasonable belief that the check in question is virtually certain to be honored on presentment.

2. To read the real thing, see 12 USC §4001 to 4010 (the Expedited Funds Availability Act), 12 USC §5001 to 5018 (the Check 21 Act), and 12 CFR §229.

3. Financial institutions may made funds available sooner if they choose; Regulation CC also allows an institution to extend the time within established limits on a case-by-case basis.

4. There are exceptions to the two and five day availability rules and additional information can be found at section 229.12 of Regulation CC.

© 2006 Sylvia Stevens

Sylvia Stevens is general counsel of the Oregon State Bar. She can be reached at (503) 620-0222 Or (800) 452-8260, ext. 359, or by e-mail at sstevens@osbar.org.

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