Don't look for check-hold times to be reduced soon
By Laura Bruce • Bankrate.com

More than two years after the Check 21 law, designed to ease and speed banking transactions, was passed, frustrated consumers are faced with the fact that while money is flowing out of their accounts more rapidly, deposits don't seem to be clearing any more quickly.

"Congress sped up how fast money flies out of bank accounts when it enacted Check 21, and as the industry has adopted new technology. But nothing has sped up how fast deposited money goes into a checking account," says Jean Ann Fox, director of consumer protection at Consumer Federation of America.

The number of checks clearing electronically is growing dramatically. NetDeposit, a Salt Lake City company that creates Check 21 software for banks, reports that more than 24 million Check 21 payments were processed during the first quarter of 2006, a 1466-percent increase from the first quarter in 2005.

It's also known that the dollar volume of fees for nonsufficient funds and overdrafts is growing, but experts caution that it's extremely difficult to draw a correlation between the two trends.

Shirley Norton, spokeswoman for Bank of America, and Carol Malicki, payment strategy director for Wachovia, both say they haven't seen any significant change in the number of bounced checks since Check 21 took effect.

"The key thing to keep in mind," says Malicki, is that "even prior to Check 21, checks cleared very quickly, especially local checks, so there's not really an impact to the customer."

Check-clearing poll

Check 21 is just part of the picture when it comes to payments coming out of your checking account faster than ever. Check conversion, direct payment, debit cards and ATM transactions are other ways that payments are siphoned electronically from your account.

These elements have all contributed to the demise of float -- the buffer zone of time from when your payment is deposited in the payee's account to when it is deducted from your account.

The issue is important for consumers, especially those who live paycheck to paycheck and don't carry a sufficient balance in their checking accounts. Many individuals have no idea how long it takes for deposited funds to become available. They plunk a check into their account on Monday and expect to be able to pay bills with that money a few days later.

Too often, consumer advocates say, individuals will find their checks had unexpectedly lengthy holds on them and the payments they wrote off the checks bounced, resulting in multiple nonsufficient funds fees.

Consumers who have been burned by nonsufficient funds fees after a deposited check cleared more slowly than they expected may not get much relief from a Federal Reserve Board study of check-hold times.

As part of Check 21, the Fed must issue a review by April 2007 of the law's impact and determine if check-hold times should be reduced.

Consumer advocates say they'd like the Fed's review to result in shorter check-hold times, but some say they don't expect that to happen. One reason is that check-processing times are supposed to quicken as time passes and more institutions buy the needed imaging technology. But the Fed's study will be limited to approximately the first 18 months of data; perhaps not enough time to show more recent gains in check imaging.