Fed Won’t Float new Check Hold Limits

WASHINGTON – The Federal Reserve last week rejected requests by lawmakers to shorten check hold times, saying it is too soon after enactment of the Check 21 law to warrant changes to its funds availability or Reg CC, availability of funds and collection of checks. In a report to Congress on the implementation of Check 21, the 2003 law that gave electronic images the status of legal tender, the Fed said while banks and credit unions are slowly speeding funds availability “To date, there has not been sufficient improvement within the check-collection and check return system to warrant legislative or regulatory changes to any of the funds availability requirements in the (Electronic Funds Availability Act) and Regulation CC.” At stake is billions of dollars in late fees and interest, the so-called float, that credit unions and banks take advantage of while they are holding their customers’ checks. The Fed’s report comes as a group of Democratic lawmakers who took control of the House Financial Services Committee this Congress is urging the Central Bank to shorten check hold times so that consumers can also benefit by the shortened float facilitated by Check 21. But industry representatives say the implementation of Check 21; the construction of electronic check and image exchanges and their connection to the nation’s banks and credit unions, has not been adopted widely enough to warrant a shortening of the electronic funds availability requirements. In making its recommendation, the Fed studied the clearing period for checks under the new law, as well as the implementation of electronic deposits at ATMs and over the Internet. “While the use of Check 21 authority has recently begun to grow more rapidly within the interbank check-collection market, the use of substitute checks and electronic check images to collect and return checks still constitutes a minority (about 20%) of all paid checks and only a somewhat larger share (about 26%) of all interbank check collections,” said the Fed. “As a result, increased adoption of Check 21 authority has likely only somewhat improved check return times.”