Date: 1987-05-05
Speaker: ST GERMAIN (democrat)
Chamber: H

The Nations financial systembanks. savings and loans. credit unionsall operate on other peoples money. and it is time that we gave the people access to their own money. H.R. 28 provides that consumersthe customers who deposit their checks in federally insured institutionsshall have use of their deposits as soon as modern technology allows. H.R. 28 ends the socalled float game that has delayed funds availability to consumers. provided unwarranted profits for banks. and generated a rising tide of fees for bank customers. The effort to bring justice to this area of financial services is not new to this House. Legislation has been pending for three consecutive Congresses and the House. on January 23. 1986. passed a checkhold bill only to have it die in the adjournment rush. The current legislation is cosponsored by 148 Members of the House. The files of the Banking Committee are bulging with letters of complaint about outlandish hold policies imposed by banking institutionscomplaints across the spectrum of the populationsenior citizens. the affluent. the poor. the hard working middle class with specific case histories. Even Social Security checksdrawn on the U.S. Treasuryhave been subjected to holds. Internal Revenue refundsagain good solid Treasury instrumentshave been placed in the deep freeze of check holds. The holds are not limited to any class of checks or deposits. The examples are across the boardpayroll checks. personal checks. cashiers checks. Government checks. The delays are a crazy quilt of arbitrary policies imposed willynilly by financial institutionsa few days in one institution. a few weeks in another. The consumer. seldom told about what check hold policy applies. is often victimized by inflated bounced check charges imposed despite deposits made well in advance. In fact. the banking industry is clearing between $3 billion and $4 billion annually from return check charges. many of which are caused by the banks own check hold schemes. Mr. Speaker. the record of abuses has been established. Statutory remedies such as those provided in H.R. 28 are long overdue. H.R. 28 strikes a balance between the clear rights of consumers and the need to protect banking institutions from possible fraud. The legislation has been worked out carefully over three Congresses and represents a true bipartisan effort to put together a workable package. The legislation contains four key elements: First. an interim schedule effective 90 days after enactment providing maximum time periods that banks can hold checks. Second. a permanent schedule of maximum time periods that must be in place no later than 3 years after enactment. This schedule will range from next day availability for such items as Government checks. checks under $100 and cashier checks. to 1 day for local checks and 4 days maximum for nonlocal checks. Third. full and timely disclosure of check hold policies of each institution to each depositor. Fourth. safeguards that limit the possibility of fraud. Mr. Speaker. the Federal Reserve is required to make the maximum effort and employ the best technology to assure that these schedules can be made as short as possible. The Federal Reserve will have the authority to add a day to the local schedule under extraordinary circumstances when other alternatives are not available. However. it is our intent that these extensions be granted only on a casebycase basis and that this not become an easy or frequently used route for banks to circumvent the purposes of the act. Mr. Speaker. the technology to speed check clearing and the return of checks is available to the banking industry now. This technology is now used widely to move funds almost instantaneously around the worldsomething that happens when it is profitable for the financial institutions. Now. we are asking that some of that same technology be used to give consumers access to their funds. The Federal Reserve has a big responsibility to see that this happens and that its regulations. implementing this act. are designed to help the consumer and not to accommodate every possible exception that can be dreamed up by the banking industrys army of lawyers. The Federal Reserve. for too long. has dragged its feet. failed to heed our requests and those of consumers to take administrative steps to improve the situation. We intend to watch the Federal Reserve closely to make certain that it understands the intent of this act. Mr. Speaker. H.R. 28 is a solid workable solution to a problem that has directly affected millions of American consumers. It is fair to the banks and fair to the consumer. It is time to end the shell game of check holds that has victimized consumers for much too long. Mr. Speaker. H.R. 28 establishes both temporary and permanent maximum hold periods. Beginning on the first year after enactment. certain classes of checks must be available for withdrawal on the next business day after the check is deposited. This special time period. which carries foward into the permanent schedule. applies to no or low risk checks such as cashiers checks. checks drawn on the same institution into which they are deposited. government checks and checks for less than $100. The temporary and permanent schedules generally distinguish between local checks and nonlocal checks. Local checks are drawn on banks in the same check processing region as the bank into which they are deposited. and nonlocal checks are drawn on banks outside the check processing region of the bank into which they are deposited. During the first year. local checks must be available for withdrawal on the third day following the day of deposit. and beginning in the second year. and continuing into the fourth year when the permanent schedule takes effect. local checks must be available on the second day following the day of deposit. The bill gives the Federal Reserve Board some flexibility to extend these time periods on a casebycasee basis. One extra day may be added to these periods if the average time to process checks drawn on a particular local institution exceed the time limits otherwise allowed. During the first 3 years. nonlocal checks must be available for withdrawal on the seventh day after they are * deposited. When the permanent schedule takes effect at the beginning of the fourth year. the maximum hold period for nonlocal checks is 4 intervening days. In other words. the funds must be available for withdrawal on the fifth day after the check is deposited. This maximum hold period for nonlocal checks is an outside limit. The Board must shorten the maximum time where. for any category of check. the check processing system could be improved to shorten the processing time for the majority of checks within the category to 2 or 3 days. The underlying premise is that the maximum time periods are to be as short as possible. The bill does not expect all checks to physically return to the bank of deposit within the maximum hold periods. Rather. the maximum schedules are to reflect average processing times. and the Federal Reserve is to improve the check clearing system during the 3 years before the permanent schedule takes effect to make the average processing time for each category of checks as short as possible. This may require developing more efficient check processing routes and utilizing new technology. Mr. Speaker. I reserve the balance of my time. .May 5. 198 7