Consumers Union has struck out in its campaign for big banks to waive bounced-check fees for the rest of the year.
Bankers and analysts say the request was based on a misunderstanding.
In letters mailed in August, Consumers Union asked 20 top banks to waive the fees on the theory that the Check Clearing for the 21st Century Act, which will take effect Thursday, would quickly speed up check clearing and therefore make more consumer checks bounce.
It also said that since clearing would be faster, banks should make deposited funds available to customers sooner.
This month it followed the letters with a 7,000-signature petition reiterating its requests. It plans to send another petition this week, with 16,000 signatures, including the first 7,000, said Gail Hillebrand, a senior attorney with the Yonkers, N.Y., group.
But James Hicks, a senior vice president with Wachovia Corp. of Charlotte, said “the fundamental premise for the Consumers Union — that consumers are going to be disadvantaged — just doesn’t hold up.”
Check 21 is widely expected to facilitate the use of digital check images for settlement, which will indeed make it possible for banks to clear payments faster. And though many observers agree that this could lead to more bounced consumer checks, a sudden increase is unlikely, they say — because banks are going to phase in imaging slowly.
That undercuts the rationale for a two-month waiver of bounced-check fees.
“Obviously there’s a lack of understanding here of what Check 21 allows and doesn’t allow,” said Robert Hunt, a senior analyst at MasterCard International’s TowerGroup Inc. research subsidiary in Needham, Mass. “There isn’t going to be a 100% change overnight; this is going to be a very gradual process.”
Ms. Hillebrand said no bank agreed to comply with her group’s request, though the American Bankers Association sent a reply, as did SouthTrust Corp., KeyCorp, and BNP Paribas’ Bank of the West Inc.
Nessa Feddis, a senior federal counsel to the American Bankers Association, wrote its September letter to Consumers Union. She pointed out that imaging would not reduce float for local checks, which need not be transported far. “Local checks will clear in virtually the same time as today,” she wrote.
The letter, which was also posted on the trade group’s Web site, argued that consumers would eventually benefit from the law. Check imaging “will reduce banks’ overhead costs,” she wrote, and “the fact that consumers benefit from cost reductions in a competitive market is a basic and proven tenet of economics.”
Ms. Feddis also wrote that waiving overdraft fees “could encourage irresponsible behavior,” since they deter customers from spending money they do not have.
And because the shift to image exchange is expected to take years — Check 21 requires only that banks accept paper printouts of transmitted images as substitutes for original checks — bankers say bounced checks are unlikely to surge.
Wachovia, for example, plans to begin using images to settle some checks drawn on Bank of America Corp. by the end of the year, Mr. Hicks said. But only those of Wachovia customers who do not receive canceled checks with their monthly statements will be involved, he said. These customers will not even notice the change, he said.
Not until 2007 does Wachovia expect to be settling about 70% of its check transactions using only images, Mr. Hicks said.
In that year, said Alenka Grealish of Celent Communications LLC, image exchange networks will carry more than 60% of checking transactions. Ms. Grealish manages the banking group at the Boston market research firm.
Ms. Hillebrand said Friday that she had not realized when she made her request how gradual the move to image-based clearing would be. Nevertheless she has not withdrawn it.
Waiving the bounced-check fee is a secondary point, she said. If banks use imaging to speed up funds availability, consumers will not need the fee concession.
“If banks move on the hold-period issue, then they don’t need to move on the bounced-check issue,” she said, because faster access to funds would reduce the number of bounced checks.
The two-month waiver would ease customers into the new check-imaging environment, Ms. Hillebrand said. “We didn’t ask for a long period — just long enough for consumers to know about this change.”
Furthermore, only one bank need change its policies, she said. “If one of them does it, I think we’ll see some following.”
Celent’s Ms. Grealish said banks will pass the float benefit along to consumers when they feel it is a good marketing move — which could happen sooner than 2007.
Competitive pressure will be the trigger, she said. “I predict that a big bank will move forward with a big marketing blitzkrieg” and its competitors will follow. “It could be a small community bank.”
Penny Gillespie, a senior analyst at Forrester Research Inc. of Cambridge, Mass., said banks that provide speedier fund access will be rewarded with customer loyalty and more of their customers’ business.
“Customer advocacy” is a big driver of loyalty, she said. “I would urge banks, when looking at Check 21, to have their customer advocacy hats on.”
Still, she said, float may make banks reluctant to release funds to their customers sooner.
Only two of the top 20 U.S. banking companies — J.P. Morgan Chase & Co. and KeyCorp — have settled checks with each other using only images, in an early test of Clearing House Payments Co. LLC’s image exchange network.
JPMorgan Chase and Key are clearing fewer than 100 checks a day that way. They are using only checks from accountholders who volunteered to receive image-only statements, and JPMorgan Chase is using only checks from former Bank One Corp. accounts.
The banks that own Clearing House Payments account for 60% of the country’s check volume, including 13 of the top 20 U.S. banks, the New York company says.
At least 27 of its members are installing the systems needed to participate in the network, the company said, but this week none of those other banks are using the image exchange system to clear checks.
