Banks Win One on Check Clearing
Though Washington's new banking legislation disappointed many in the industry, it contained a significant victory for institutions concerned about losses caused by check-clearing regulations.
The new law makes permanent a temporary rule that gave banks more time to clear checks deposited at automated teller machines owned or operated by other institutions.
Under the Federal Reserve's existing Regulation CC, which set deadlines for clearing checks through the payment system, banks could take no more than four business days to make funds available on checks written against banks in the same metropolitan area and deposited at "nonproprietary ATMs."
This time frame is longer than for local checks deposited in a bank's own ATMs or branches. Funds for these transactions must be made available in two business days or less.
However, the four-day rule for nonproprietary ATM deposits was in effect only until Nov. 28, after which the holding time would have been reduced to two business days.
Bankers have argued that two days is not enough time to ascertain whether the ATM-deposited checks are local or nonlocal items, and whether they are backed by sufficient funds.
To avoid bad-check losses, many banks have threatened to stop accepting deposits at nonproprietary ATMs if the two-day rule took effect, industry experts said. A few banks did just that before Congress approved a temporary measure lettingbanks hold the items for four days.
"For many shared [ATM] networks and financial institutions, this extension is especially important," said Sean Kennedy, president of the Electronic Funds Transfer Association.
"Faced with [shorter check hold times], financial institutions would have been forced to discontinue a valuable consumer service or assume greater deposit risk at a time when it would be least affordable."