Don't look for check-hold times to be reduced soon |
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"I think it's a moment of opportunity for the customer and a moment of responsibility for the Federal Reserve," says Gail Hillebrand, senior attorney for Consumers Union. "For the first time in several years they'll have significant data. But they closed the data as of May 1, 2006, so they'll be looking at data from a year before the report comes out."
Check 21 became effective in October 2004. It focuses
on check truncation -- converting an original check to a new electronic
instrument called a substitute check, which is a negotiable instrument.
The bank can, if necessary, print out a paper copy of the front
and back of your check.
The grocery store, for instance, sends your check to its bank for deposit into the store's account. Check 21 allows the store's bank to either process the original check or convert the check electronically and create a substitute of the original if it's needed by you or another bank in the processing chain.
The idea is that more and more banks, as they buy the needed equipment, will accept the electronic image, eliminating expensive transportation of paper checks. The bank that converts the original check usually destroys it after making the electronic image.
Stores to process checks
As of Jan. 1, 2007, stores will also be able to process checks this
way as long as they provide notice to customers that "if a
check is converted, funds may be debited from the consumer's accounts
as soon as the same day that payment is received, and the check
will not be returned by their financial institution," according
to a Federal Reserve news release.
Consumers Union asked for feedback on the issue and
received hundreds of anecdotes from people who say their financial
institutions withhold funds for the full length of the hold even
if their checks have cleared. Many complained that while their checks
were bouncing, the bank had free use of their money.
The Expedited Funds Availability Act provides guidance
for how long institutions should hold funds based on a dizzying
variety of factors. Is it cash, an electronic payment, a personal
check, a U.S. Treasury check, a state or local government check,
a postal money order, a cashier's check? Is the check local or nonlocal?
Is the check for a large dollar amount? Was it deposited at an ATM
that the bank owns or doesn't own? Was the money or check handed
to a teller?
Based on the answer to those and several other questions, the funds may be available the next day or as many as 11 business days later -- and there are exceptions that could delay the availability even longer.
Depending on the circumstance, the customer may find that only
a small part of the deposit is available at first, with an additional
amount released a few days later and the remainder a few days after
that. In fact, the act has no fewer than 22 flow charts describing
availability schedules for deposits.
"All of this contributes to consumer confusion," says Fox.
Every time you write a check you have no idea how
it will be processed. The faster money flies out of bank accounts,
the more likely families that are having trouble making ends meet
will overdraw their accounts and trigger overdraft fees, nonsufficient
funds fees and lose control of their checking accounts.
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