Check 21

STATUS
In January 2005, Rep. Carolyn Maloney (D-NY) re-introduced the Consumer Checking Account Fairness Act, which would instruct the Federal Reserve to reduce the time that banks can hold non-local checks from five to two business days. Saturday would be counted as a business day. Ms. Maloney argued that banks are able to use electronic technology to clear checks as fast as possible, but consumers still face lengthy hold times when depositing checks into their accounts and are increasingly paying overdraft fees.

The Check 21 Act requires the Federal Reserve to study the effect that the legislation will have on the speed of payments and whether check hold times should be reduced. The Fed is currently conducting this study.

In December 2004, Rep. Michael Oxley (R-OH), the Chairman of the House Financial Services Committee, urged the Federal Reserve and the banking associations to reduce check hold times for consumers when checks are cleared more rapidly as a result of Check 21. In his letter to the Federal Reserve, Rep. Oxley wrote that “holding a deposit to ensure its safety and soundness is reasonable, but holding a deposit in order to profit from the interest is completely unacceptable.” Representative Maloney and others sent a similar letter.

BACKGROUND
The Check Clearing for the 21st Century Act ("Check 21") removes legal barriers to check truncation. It permits banks to replace original checks with "substitute checks" and guarantees legal equivalence between original checks and "substitute checks."

AFP ACTIONS
AFP supported the passage of Check 21.

At the March 2005 AFP Government Relations Committee meeting, AFP members met with congressional offices including Representative Maloney, to express concern with the Consumer Checking Account Fairness Act (see above). AFP’s Government Relations Committee agrees that faster availability is a benefit to all, but it should be balanced by the need for safety and soundness in the payment system and the mitigation of fraud.