The Federal Reserve Board urged Congress Wednesday to let banks wait up to three days before crediting a local check to a customer's account.

Banking organizations have complained for years that the two-day check- clearing period called for in the 1987 Expedited Funds Availability Act contributes to more than $430 million a year in check-fraud losses.

The Fed's recommendation was part of a report to lawmakers that Congress requested. It said an extra day would let banks clear more than 80% of all local checks before they have to make funds available. That would substantially reduce losses due to fraud, the staff concluded.

"I didn't support this position easily, because I think it's in the wrong direction," said Fed Governor Edward W. Kelley. "But reports say a third day is crucial, and banks need it because two days isn't long enough."

A Fed study found that 60% of banks have check-fraud losses. Of those, 45% said they would take advantage of the extra day.

"We're very pleased with the recommendation, and we applaud the Fed for recognizing that check fraud is a problem," said Viveca Ware, director of payment systems for the Independent Bankers Association of America.

Ms. Ware said customers at most commercial banks wouldn't be affected because many banks make funds available sooner than the law requires. About 75% of all banks make funds available in less than two days, and 70% make out-of-town checks available in less than the required five days.

The proposal would let a bank wait an extra day if it suspects check fraud, she said. "This won't be a blanket hold on account holders, so customer backlash should be minimal," Ms. Ware said.

Nessa Feddis, senior federal counsel for the American Bankers Association, said criminals have figured out the funds availability schedules of some banks and attack those with the shortest holding periods. Authorities recently discovered a "criminal manual" that detailed the clearing schedules for scores of California banks, she said.

"It said, 'Use this bank, because their availability schedule is this and that,' " she said. "It was unbelievable. But then again, you don't need a Ph.D to figure out which banks you can go after."

Officials at U.S. Public Interest Research Group and Consumers Union were unavailable for comment. Congress is expected to address the report next year.

Mr. Shea writes for Medill News Service.

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