Complying with the Expedited Funds Availability Act is costing the banking industry millions of dollars in increased check fraud, according to industry experts.

Under Regulation CC, which implements the 1987 law, bankers must clear local checks within two days and out-of-town checks within five.

The rules, designed to help customers, are making life too easy for criminals.

"The rules make check availability very predictable," said Bruce Brett, senior vice president of Signet Bank, Richmond, Va. "Crooks know they're going to beat the return back."

In 1993, banks lost $815 million to check fraud, according to the American Bankers Association.

"Something has to change," said Robert Rasor, special agent in charge of the U.S. Secret Service's financial crimes division. "The bad guys all understand where the weak spots in the system are."

New desktop publishing software, which makes it easier to forge checks, also contributes to the problem.

"You don't know if the check is good until after you have released funds," said Nessa Feddis, senior federal counsel at the ABA. "Reg CC is a problem."

Concerned about the funds availability law, Congress last year asked the Federal Reserve Board to study whether Reg CC is contributing to large check-related losses at banks.

Last year's Riegle Community Development and Regulatory Improvement Act asked the Fed to consider whether the deadline for clearing local checks should be extended.

Mr. Brett said 70% of the time it takes banks three days to collect local checks.

The central bank is about a year and a half away from finishing the study, according to a Fed spokeswoman. It will take so long, she said, because most banks don't keep information on check fraud.

The ABA is lobbying lawmakers in hopes of getting the extension sooner.

"The statute could change before the study is out," Ms. Feddis said. The ABA will discuss the issue at a check fraud seminar June 22 and 23 in Dallas.

Mr. Brett, who also is chairman the ABA's task force on check fraud, is trying to find a solution.

"This is a problem that the banking industry has to solve itself," Mr. Brett said.

Signet rewards employees who detect check fraud.

"A lot of people like to be gumshoes," Mr. Brett said.

The bank also is considering exchanging information with other banks about how to identify good and bad checks.

Mr. Brett predicts the problems with check fraud will not only encourage more partnerships between banks, but between banks and law enforcement agencies as well. That's because the government has some new ideas for fighting check fraud.

Mr. Rasor of the Secret Service said traditional deterrents such as signature verification don't work. The only way to be sure that the person cashing the check at the bank is legitimate is to use a "digital fingerprint" system, according to Mr. Rasor.

Fingerprints could be computerized so a customer cashing a check would simply touch a pad and the teller would know that the person is the account holder.

The technology is a foolproof way to identify a person, he said. Mr. Rasor admits fingerprinting would offend many customers, but he said people should think of it as protecting themselves from crooks trying to access their accounts.

Short of fingerprinting, Mr. Rasor said banks should strike deals with companies to share payroll information. Under such a system, banks could verify customers' identities with employers.

Reg CC went into effect in 1988. For the first three years, banks had two days for clearing local checks and seven days for out-of-town checks.

The regulations have been amended several times, most recently last year.

General compliance with Reg CC, such as training and setting up computer systems, has been relatively easy, Mr. Brett said.

"The ongoing cost is not burdensome," he said.

However, fraud continues to mushroom. "The enemy is at the gate," Mr. Brett said.

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