In a cash account, a freeriding violation occurs when the investor sells a stock that was purchased with unsettled funds.
The Federal Reserve Board's Regulation T requires brokers to "freeze" accounts that commit freeriding violations for 90 days.
Because the transaction is considered a credit issue, the Federal Reserve is responsible for the rule, which is officially called Federal Reserve Board Regulation T. If a brokerage customer is approved for margin trading, there will be a line of credit to "cushion" the one day settlement period, but there is a limit on it.
Likewise, if a trader sells shares, the cash may be credited to their account balance immediately but the trade will not settle for one day.
The main difference between a good faith violation and freeriding is the eventual deposit of funds to cover the purchase.
The Federal Reserve considers a good faith violation an "abuse of credit" and requires the broker keep track of them.