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Hands up! Fine print hides bank 'holdups' that slow clearing of checks

Banking small printWarning: Bank holdups are rampant.

Not the kind involving guns and masks, but the ones where a bank takes your money and refuses to let you have it for several days.

These are legal "holdups," sanctioned by the federal government.

Knowing when you can get your hands on the money from the check you just deposited is more important than ever. Debit cards and speedy electronic check-clearing increase the chances of bounced-check fees if you start spending without having read the fine print.

The same goes for the ATM. Arriving at the machine expecting to get all the money you need may be foiled by long check holds and limits on how much the bank will give you that day.

Banks hand out their policy on when, and for how long, they can defer access to your deposits at the time you open the account. Like most tedious-looking documents, the check-holding rules are often ignored.

If you don't ask, they won't tell
The problem is, in most cases, the bank is not required to remind you when it plans to sit on your check a few days.

"A bank doesn't have to give you a notice that there is a hold every time you deposit a check," says Stephanie Martin, managing senior counsel for the Federal Reserve Board.

"Only when there is an extended hold that is an exception to a bank's routine policy do they have to tell you."

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A customer who hasn't checked the fine print could damage a good record with their bank.

"People should make sure they know what the bank's availability policy is," says Martin. "A lot of people don't care. They only care that one time."

Banks place holds on checks to give them time to clear, thus avoiding losses. They also make profits off dormant deposits.

Banks know when to hold -- and fold -- them
The Expedited Funds Availability Act, enacted in 1987, lays down the rules on the availability and collection of monies for all state and nationally chartered banks, thrifts, credit unions, and savings and loans.

In accordance with that law, there are three standard hold periods: one, two and five business days.

For example, the act allows banks to hold local checks up to two business days, and out-of-state checks and ATM deposits up to five.

But don't expect a warning every time. If the hold is not an exception to rules you were given in the first place, the bank is not required to remind you.

Read those rules
"The customer has some responsibility here," says Nessa Feddis, senior federal counsel for the American Bankers Association, a Washington, D.C., trade association.

"It would take an enormous amount of time and resources if a bank did a notice every time you made a deposit."

Banks are required to tell you when money is tied up beyond normal limits in the following cases:

  • You are a new account holder.
  • You have deposited more than $5,000 in the same day.
  • You are redepositing a check because it was returned unpaid, lacked an endorsement or was postdated.
  • You have a history of overdrawing your account.
  • The bank has "reasonable cause" to doubt the collectibility of a check.
  • Bank emergencies such as computer breakdowns.

In these exceptions, the bank must tell a customer -- either at the time the deposit is made or via a notice mailed the following business day -- how much is being held, the reason an exception is being invoked and a time frame for when the money will be available.

The law says banks can extend availability in these cases "by a reasonable period."

Customers who have bounced several checks are in for a lengthy probation period.

"Banks can place extended holds on deposits for these customers for six months," says Martin.

Banks also have a lot of leeway with foreign checks. "Those aren't subject to the availability rules," says Martin. "It is up to the bank."

In addition, a bank might charge a fee for handling a check from an overseas bank.

Getting around the holds
There are half a dozen easy moves consumers can make to circumvent the hang-ups.

    1. Use direct deposit for paychecks.
    2. Take advantage of linked accounts and transfer money to cover your needs until deposited checks can be accessed.
    3. Consider overdraft protection through a savings account or a line of credit to get you through holding periods. But be careful of costs for this service, particularly with a line of credit.
    4. If you need fast access to money coming from out of state, and are willing to pay extra, consider a wire transfer to your account or Western Union delivery.
    5. Ask your bank about sending the check out for collection to speed up the clearing process. This requires special handling, though, so expect a fee.
    6. If you are a good customer, banks are sometimes willing to bend a little, so kindly ask the branch manager to shorten the hold.

Welcome to the (ATM) machine
Using an ATM means playing by a new set of bank rules.

Customers should avoid depositing money at the ATM because banks usually have earlier cutoff times for automatic teller deposits. You can run into a two-day wait from your own bank, and five business days for money deposited at another bank's ATM.

Don't expect to withdraw massive sums from the ATM. Banks limit the amount you can withdraw in a day from teller machines. Consumers should check with their bank on what the daily maximum is.  

And make it a point to obtain a copy of the bank's availability rules, which should be available in a brochure at the branch.

"What's important to the customer," says Feddis, "is to know your bank's policy."

-- Updated: Jan. 31, 2002

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