New Check 21 legislation works for consumers

A federal legislator from New York has introduced legislation that would alter the Check 21 law.
The Consumer Checking Account Fairness Act, introduced by Rep. Carolyn Maloney, D-N.Y., is aimed at making the new law fair to 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, according to a Consumers Union news release.
The Check 21 law 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 save banks billions of dollars when it is fully implemented.
But quicker check clearing could mean more bounced checks and overdraft fees for some consumers, since banks aren’t under any obligation to make deposited check funds available to consumers any sooner.
Under the current law, banks can send an electronic image of a check, rather than the check itself, to another bank, making it possible for the check to clear as early as the same day.
Checks deposited by consumers, however, can be held for an additional business day, not counting weekends; nonlocal checks can be held for up to five business days.
The new law would:
• reduce the check hold time to no more than two business days for consumer check deposits of up to $7,500, including nonlocal checks;
• count Saturday as a business day toward the check hold period if the bank debits from checks on Saturdays;
• prevent banks from charging bounced check fees when the deposit to cover the check has actually cleared but the hold period is not completed; and
• require banks that wish to charge a fee for bounce protection to get the customer to ask for this feature before charging fees for it.
John Duke, executive vice president of Empire Bank in Springfield, said the law may have unintended consequences.
“I think if you just sample a number of financial institutions, and say, ‘What is your normal delay on deposited funds without notification to the customer?’ they’d probably say next day,” he said. “If something was put in concrete to say that two days was the maximum, it may have an adverse impact on consumers – if they’re presently getting it in one day, and you mandate two days, you may delay service that they’re already getting.”
Empire Bank has been using electronic imaging for checks for about six years for archiving purposes and for customers who choose electronic images in lieu of paper copies.
Duke said the law hasn’t had much impact yet on the speed of payment processing, because many banks already were using electronic check imaging for their customers, and banks that haven’t been using the imaging system may be put off by the cost of the required technology.
“I believe that the check-clearing process over the last few years has (sped up), so I don’t think Check 21 had a lot of impact on the forward collection of checks,” he said.
“I do believe over time that we will see an improvement on return items and forward collection being converted to electronic. But it’s going to be a while before that meshes in – it takes a tremendous amount of technology to support that, and I think that’s what we’re going through now,” Duke said.
An attorney for Consumers Union, the New York-based nonprofit publisher of Consumer Reports magazine, said consumers shouldn’t have to wait to use money in their bank accounts.
“Since banks are going to benefit from quick check processing under Check 21, so should consumers,” said Gail Hillebrand, Consumers Union senior attorney, in the release.
A fact sheet on the Consumer Checking Account Fairness Act is available at www.consumersunion.org/money.