Fed Delays Check-Fee Revision

Bowing to pressure from the Federal Trade Commission, banks, and commercial airlines, the Federal Reserve System has put on hold a proposal to change the way it prices the transportation of checks from one reserve bank district to another.

The plan, which was released for public comment last summer, elicited 79 dissenting comments and only three in favor.

One of the dissenters was the Federal Trade Commission, which in a written comment filed last March said the proposal could create an uneven playing field for private couriers and correspondent banks.

Correspondent Banks Opposed Change

The Fed was widely seen as attempting to retain big commercial bank customers that send large volumes of checks by putting a cap on the per-item fees for checks processed and sent via the Fed's Interdistrict Transportation System.

But the proposed volume discount would also have adversely affected correspondent banks and the private couriers they contract with to ship checks, according to industry observers. Banks would only have been eligible for the price cap if they processed checks through the Fed, so correspondent banks feared they would lose business, and would themselves get less benefit from the discount.

In the past, the Fed has maintained that its transportation service does not compete with services offered by airlines, and so had never done an analysis of the impact its offerings could have on the competitiveness of couriers.

In contrast, the FTC found that the processing and transportation services offered by banks combined with couriers are comparable to Fed services. The FTC said that couriers therefore are direct competitors, and are entitled to the same protections that govern the Fed's dealings with correspondent banks.

The Fed had hoped to put the measure into effect by the beginning of 1991. It was not clear whether the measure would be released for public comment in a revised form later this year.

"We're still evaluating what the next step should be," said Louise Roseman, assistant director of reserve bank operations and payment systems for the Federal Reserve. "It's unlikely we would recommend that the board adopt the proposal as it now stands."

Despite their perceived advantage, even some money-center banks criticized the proposal. Citicorp commented: "It would be a discriminatory tactic against the majority of the banking industry, in that only a small percentage of banks would be able to take advantage of a "cap."

The Citicorp comment also cited "doubt about the Fed's ability to increase its workload without hindrance to the existing ... system."

The letter went on to say that the proposal would "drive some small private sector members out of business."

A comment from Marquette Bank of Minneapolis stated simply that "the check collection effort could be improved if the [Fed's transportation system] were abandoned and ... check collection [were to become] fully privatized."

A Victory for All?

Lincoln Rutter, president of US Check, the biggest private courier of checks, said the FTC's comment was a victory for all competitors. "It was the first time the FTC said that airline companies do compete with the Fed," Mr. Rutter said. "The Fed has never acknowledged that." US Check, based in Columbus, Ohio, offers scheduled flights of Lear jets to take checks from one Fed district to another.

"I don't think the Fed expected the level of dissent it got," said Ian Macoy, Fedrepresentative for the American Bankers Association.

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