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Check 21 can allow the checks that you write to clear
faster -- sometimes in one or two days. Your bill gets paid more
quickly and, of course, the money comes out of your account more
quickly. But the other side of the coin hasn't changed. When you
deposit a check, the bank can still hold it for five or more business
days before giving you access to the funds.
Some consumers and their advocates say the playing
field isn't level. They want check hold times shortened.
Thanks to Check 21, a federal act that facilitates
the electronic processing of paper checks, you can no longer rely
on your mortgage payment taking several days to clear.
If you're one of those people who counts on having
the funds available for a few extra days after mailing a check,
you could find checks bouncing. Float -- the amount of time it takes
to deduct the money from your account after the person to whom you
wrote the check deposits it -- could be reduced to one day.
But still, Check 21 didn't shorten the amount of time
a bank can hold checks you deposit before crediting your account.
While consumers can expect check hold times to shorten, it's not
about to happen immediately. It's an issue that riles some consumers,
who say their checks are bouncing and they're getting socked with
fees for insufficient funds.
Politicians have been hearing from consumers and,
in turn, are pressuring the banking industry and the Federal Reserve
to speed up consumers' access to deposited funds.
In a letter to eight banking organizations, Rep. Michael
Oxley, R-Ohio, chairman of the House Committee on Financial Services,
said he understands the importance of check holds in preventing
fraud, but that shortened clearing times should result in shortened
hold times.
"Holding a deposit to ensure its safety and soundness
is reasonable," writes Oxley. "But holding a deposit in
order to profit from the interest is completely unacceptable. The
latter practice prevents consumers from realizing the benefits of
their own assets, while creating an illegitimate revenue stream
for financial institutions. It unfairly penalizes consumers and
should be eliminated from the U.S. payment system."
Rep. Carolyn Maloney, D-N.Y., will reintroduce a bill,
H.R.
5410, that seeks to "redress imbalances between the faster
withdrawals permitted under the Check 21 Act and the slower rates
for crediting deposits."
While no one seems to doubt that check hold times
will eventually be shortened, banking industry representatives say
now is not the time. The reason, says American Bankers Association
spokesman John Hall, is that banks are converting very slowly to
Check 21.
"People think the faster processing of checks
has already happened, but it hasn't. Our survey shows that most
banks won't be doing the Check 21 conversion until 2006. There's
urban myth about when banks plan to do this."
Converting to Check 21 is a major undertaking for
the banking industry, and many banks, including large institutions
such as Washington Mutual, have opted to sit on the sidelines to
some extent for a while. Washington Mutual doesn't convert checks
to electronic payments, but it must accept substitute checks from
institutions that do.
"Our receipt of substitute checks is absolutely
minuscule," says spokeswoman Lisa Margolin-Feher."More
of a trickle than anything else."
That's no reason, Maloney says, to delay changing
the availability of funds.
"Even if Check 21 is only partially implemented,
we've been hearing from consumers who wonder why they're paying
more bounced-check and overdraft fees. If consumers are being needlessly
penalized right now, then we need legislation to give them help
right now, not two years down the road. This is a consumer-driven
bill."
ABA's John Hall points out that the Federal Reserve
is mandated under Check 21 to study the check-hold issue and determine
if the funds-availability schedule needs to be changed. The Fed
has until April 2007 to finish its study, but Oxley, in a letter
to Federal Reserve Chairman Alan Greenspan, has asked for a meeting
to discuss the status of the study.
Most banks say they already make funds available to
consumers much sooner than they're required to and that the percentage
of checks that have a hold placed on them is very small.
Representatives from Wells Fargo and Wachovia say
their banks put holds on less than 1 percent of all deposits. Citibank
says its funds-availability policies generally mirror federal guidelines,
but the bank often provides faster access.
"We also offer services whereby the deposited
funds are made available to the customer immediately, even before
Citibank has received the funds from the paying bank," says
spokesman Mark Rodgers. "Our check-as-cash service gives customers
faster access to funds deposited in their checking accounts by using
the combined balances in other linked Citibank accounts as coverage
for those check deposits."
While it's almost certain that regulators eventually
will shorten check-hold times, Maloney's bill also calls for broader
changes to the Expedited Funds Availability Act. The proposed act:
- Limits certain overdraft fees imposed during a check-hold period.
If the bank has received the funds for a deposited check, but
has not yet made the funds available to the account holder, the
bank may not assess any fee for an overdraft that would not have
occurred if the funds were available.
- Requires banks to credit deposits to a consumer checking account
before posting any debits received that day.
- If the bank is open on Saturdays and it debits accounts for
checks received, then it must count Saturday as a business day
when calculating how many days a deposited check has been held.
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