Leading up to the October 28, 2004 implementation date of "Check 21," there was a "hue and cry" in the popular business press about the unfairness of the fact that, with checks clearing "electronically" much faster than they have traditionally cleared "manually," consumers would no longer be able to rely upon their ability to "float" checks they wrote with insufficient funds in their bank accounts. Many commentators, including such main stream media "stars" as Sandra Block and Suzie Orman decried the "unfairness" of the fact that banks would be able to collect upon checks much more quickly (and impose "NSF" fees on checks that "bounced"), yet were not obligated by Check 21 to release "deposit holds" more quickly than is allowed under separate Federal Reserve Board regulations. The fact that Check 21 calls for a study by the Federal Reserve on that issue to be completed and submitted to Congress within 30 months was considered nothing more than permitting banks to engage in a 2-1/2 year "rip off" of the consumer.
Orman in particular was an advoacte of the "Big Bad Bank" conspiracy to gouge the consumer. She contended that Check 21 was part of an elaborate scheme that, coupled with automatic overdraft protection, NSF fees and an expected substantial increase in the number of bounced checks by consumers, was nothing more than "a clever way [for the banking industry] to maximize its fees from our missteps." Yeah, Suzie, that was the reason for Check 21. It was all a plot to steal your money, not to modernize the banking system.
What Suzie, Sandra and other critics seemed to overlook, is the fact that banks are not required by Check 21 to image chacks and process them electronically; they are merely permitted to do so. While many banks, particularly the large ones, are doing so, and most eventually will be forced to do so, many are not yet there and won't be there in the next year. Changing the deposit hold periods prior to the banking system actually converting to faster check processing would be unreasonable. That's the reason for the 30 month study period.
Has the advent Check 21 resulted in a massive increase in the number of bounced checks? That depends upon who you talk to. No, say observers such as this newspaper. Yes, says the State Treasurer of Illinois, based upon "numerous consumer complaints about bounced checks" she has received. Again, it's too early to tell, but the objective, verifiable data is not there to support the conclusion that a substantial increase in the number of bounced checks exists, or if it does exist, that it is caused by Check 21. It might reasonably take as long as...oh...30 months to obtain data supporting ir refuting such a conclusion.
That hasn't stopped some members of Congress. As noted by the Illinois State Treasurer, two Democratic Congresspersons introduced in November 2004, HR 5410, the Consumer Checking Account Fairness Act. HR 5410 would, if adopted, require the Fed to adopt regulations to shorten the periods for deposit holds, and although the Fed would have some leeway in this regard based upon the whether or not a bank has adopted electronic check clearing back office operations, the Act would substantially, and detrimentally, change the way in which banks currently clear deposits and checks. A brief list of the "highlights" of the Act can be found here.
If the Act is reintroduced in the 109th Congress, banks and other financial institutions should make certain that their representatives in Congress understand the issues and the harm such legislation might cause.
---Kevin Funnell