In what promises to be a major financial services issue in the 109th Congress, a leading Democratic lawmaker introduced a bill last week that would require credit unions and banks to share the advantages of faster check clearing provided by the new Check 21 law.
The bill, introduced by Rep. Carolyn Maloney, one of the senior Democrats on the House Financial Services Committee, would reduce the clearing time for some checks to provide consumers with faster access to their funds-one of the chief goals of the new check law.
The Consumer Checking Account Fairness Act would reduce the hold time on checks up to $7,500 to two business days; count Saturdays as a business day toward the check-hold period if the credit union or bank debits the check on Saturday; prevent credit unions and banks from charging bounced check fees when the deposit has cleared but the hold period has not been completed; and require credit unions and banks that charge a fee for bounce protection to get the consumer to request the bounce protection first.
The hold time for checks, that is the period during which a credit union or bank may hold a check to ensure it has cleared, is generally five business days.
But the new law is aimed at getting checks cleared faster by allowing credit unions and banks to rely on electronic images, instead of the paper versions, as legal tender. Consumer advocates and several lawmakers of both parties assert this will result in billions in interest, generally known as float, accruing to the financial institutions because of the faster clear times.
The Check 21 law requires the Federal Reserve to study the issue over two years and determine whether its check-clearing requirements, including hold periods under Reg CC should be shortened in conjunction with the new law. The two-year period was included in the bill in order to give financial institutions time to implement new technology to take advantage of Check 21 and to provide the Fed with some kind of data collection point to determine who has benefited by the law and by how much.
Normally, Maloney's bill wouldn't stand much chance of passing, because the Republican majority that controls both the Financial Services Committee and the House have shown little inclination to move Democrat-sponsored initiatives. But Maloney's position has support from the Republican leaders on the Committee who wrote the Federal Reserve last December expressing the same concerns over the billions of dollars in interest that is expected to accrue to financial institutions from the new law. The lawmakers sent the same letter to leading financial institution trade groups, including CUNA and NAFCU, expressing the same concerns.
Because of the bipartisan interest-if not support-on this issue, the Maloney bill is expected to become a major debating point in this year's Congress.
