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Post “Check 21” banking law reforms proposed in Congress

Tuesday, February 15, 2005


Bill Speeds Up Bank Deposits to Help Consumers Avoid Bouncing Checks

WASHINGTON, D.C. – Under legislation introduced today in Congress, consumers would get quicker access to the money they deposit in their bank accounts now that the checks they write can clear much faster under the new “Check 21” law. The Consumer Checking Account Fairness Act, introduced by Representative Carolyn Maloney (D-NY), is aimed at making the new law more fair for consumers by shortening the amount of time that a bank, thrift or credit union can hold a deposited check before allowing consumers to use the funds.
“Consumers shouldn’t have to wait so long to use the money they’ve deposited in their bank accounts,” said Gail Hillebrand, Senior Attorney for Consumers Union. “Since banks are going to benefit from quicker check processing under Check 21, so should consumers.”
Check 21 makes it easier for banks to electronically transfer check images instead of physically transferring paper checks. The new law is widely expected to speed up check processing and to save banks billions of dollars when it is fully implemented. Under the new law, checks could clear as early as the same day. But quicker check clearing will mean more bounced checks and overdraft fees for some consumers since banks aren’t under any obligation to make funds from checks that consumers deposit into their accounts available any sooner.
Banks maintain that the law will be implemented gradually, but according to news reports, eleven large banks accounting for half the nation’s check volume plan to start processing checks between themselves through electronic images by July 2005. Even if a consumer’s bank doesn’t implement Check 21 right away, another bank that processes the consumer’s check might choose to do so. That means that any check a consumer writes might clear as early as the same day. Check clearing is also speeding up because merchants can convert checks to debit payments.
On the flip side, banks can hold a local check deposited by a consumer for an additional business day, not counting weekends, before crediting the customer’s account. A local check deposited on a Friday thus can be held by a bank until the following Tuesday. Nonlocal checks can be held by banks until the fifth business day, not counting weekends, before the customer gets access to the deposited funds. In other words, a nonlocal check deposited on a Friday can be held by the bank until the following Friday.
The Consumer Checking Account Fairness Act helps to make the Check 21 law more fair for consumers because it:
• Reduces the check hold time to no more than two business days for consumer check deposits of up to $7,500, including nonlocal checks.
• Counts Saturdays as a business day toward the check hold period if the bank debits from checks on Saturdays.
• Prevents banks from charging bounced check fees when the deposit to cover the check has actually cleared but the hold period has not yet been completed.
• Requires banks that wish to charge a fee for so-called “bounce protection” to get the consumer to ask for this feature before charging fees to the consumer for it.
“Check 21 left some consumers more vulnerable to bouncing checks because it enables banks to debit accounts as quickly as the same day a check is written while still taking their time with customer deposits,” said Hillebrand. “This bill helps to restore some basic fairness to the checking law by giving consumers quicker access to their own money.”
For a fact sheet on the Consumer Checking Account Fairness Act, click here.

Gail Hillebrand: 415-431-6747
Chanelle Hardy: 202-462-6262