Regulatory Comment: Availability of Funds and Collection of Checks
The Pew Center on the State's Safe Checking in the Electronic Age Project responds to the Board of Governors of the Federal Reserve System's (“the Board”) call for comments on RIN No. 7100-AD68, Availability of Funds and Collection of Checks. The Board proposed amendments to rules designed to facilitate the transition to full-electronic check collection and return, revised the forms used to disclose funds availability policies, and requested comment on whether it should consider future changes to the regulation to improve the check collection system.
Based on research detailed in the April 2011 report, Hidden Risks: The Case for Safe and Transparent Checking Accounts, The Pew Safe Checking in the Electronic Age Project had six specific recommendations related to this request for comment, briefly listed below:
- The Board should independently study the check processing system and reduce hold periods to as short a time period as current technology allows.
- Financial institutions should be required to post withdrawals made after hours the following business day and to post all transactions chronologically.
- The Board should require financial institutions to process all deposits made during normal business hours on the same day.
- The Board should mandate that The Pew Charitable Trusts' disclosure box, which includes the funds availability schedule, be posted on banks' Web sites, provided at account opening and on demand.
- Electronically-created items, like remotely created checks, should be covered by Regulation CC.
- The Project supports the Board's recommendation to require electronic notice of extended holds on deposits.
1 At that time, PNC did not provide funds availability disclosures online or in a document for consumers to keep at a Washington, D.C. branch visited by Pew staff.
2 Pew Health Group, “Hidden Risks: The Case for Safe and Transparent Checking Accounts” (April 2011), available at http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Safe_Banking_Opportunities_Project/Pew_Report_HiddenRisks.pdf.
3 Check Clearing for the 21st Century (Check 21) Act, 12 USC § 5001 et seq.
4 Expedited Funds Availability Act, 12 USC §§ 4001(3), 4002.
5 UCC § 4-401, The Office of the Comptroller of the Currency, “Answers About Overdraft Fees and Protections,” available at http://www.helpwithmybank.gov/faqs/banking_overdraft.html#drop06.
6 E.g., Gutierrez v. Wells Fargo Bank, 730 F. Supp. 2d 1080 (N.D. Cal. 2010).
7 Pew Health Group, “Hidden Risks: The Case for Safe and Transparent Checking Accounts” (April 2011).
8 12 USC § 4002; Regulation CC, 12 CFR §§ 229.10, .12.
9 The Project is not suggesting that financial institutions should be required to extend provisional funds to consumers who have deposited checks that are not yet available. Since the only withdrawals that can be made during non-business hours are electronic transactions, a bank should be free to decline a transaction if the customer does not have available funds to cover it or has not opted into an overdraft service.
10 Banks should be free to post withdrawals on any day if they also post deposits on those days as if they were normal business days.
11 This would also apply to withdrawals made after a bank's normal hours during the week if funds from a deposit are scheduled to be available the next morning.
12 12 CFR §§ 229.2(g), .19(a)(5)(ii).
13 12 CFR § 229.19(a)(5)(ii).
14 The Boards initial regulations on funds availability included discussion about courier schedules that were a large part of the rationale for cutoff times. 54 Fed. Reg. 13841 (April 6, 1989).
15 12 USC §§ 4001(3), 4006(a).
16 12 CFR § 229.19(a)(5)(ii); UCC § 4-108 (2005).
17 Federal Reserve Board Annual Report – Consumer and Community Affairs (2009). Available online at http://www.Boarderalreserve.gov/boarddocs/rptcongress/annual09/sec2/c2.htm. Other studies have also found that banks do not comply with disclosure requirements. See U.S. PIRG Education Fund, “Big Banks, Bigger Fees: A National Survey of Bank Fees and Fee Disclosures” (April 2011), available at http://creativecommons.org/licenses/by-nc-sa/3.0/, Government Accountability Office, “Bank Fees: Federal Banking Regulators Could Better Ensure That Consumers Have Required Disclosure Documents Prior to Opening Checking or Savings Accounts” (January 2008), available at http://www.gao.gov/new.items/d08281.pdf.
18 Pew Health Group, “Hidden Risks: The Case for Safe and Transparent Checking Accounts” (April 2011).
19 12 CFR § 229.30.
20 12 CFR § 229.2(ww), (fff).
21 12 CFR §§ 229.10, .12
22 Financial institutions could already be providing funds from these instruments on the same schedule as checks or a faster schedule, but the Board should still mandate this practice to ensure this is the case.
23 As we stated in our first recommendation, the Board should study processing times and make delays for all types of deposits as short as possible.
24 12 USC § 4003(f).
25 The banks we studied generally disclosed that they would inform customers of an extended hold at the time of the deposit. This data, and the need for electronic notice, relates only to circumstances where an extra hold is placed on a deposit after the accountholder has left the branch or ATM.
26 The Board should recognize that there may be privacy concerns with providing notice electronically and allow customers to elect not to receive electronic notification of extended holds.
27 Federal Deposit Insurance Corporation “A Study of the Unbanked & Underbanked Consumer in the Tenth Federal Reserve District” May, 2010.