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April 21, 2005
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ICBA and ABA Chairmen Testify on Check 21
Hayes: Cautions against rushing
to shorten check-hold periods
Duke: Check 21 benefits banks and customers
David Hayes, chairman of the Independent Community Bankers of America
(ICBA), told Congress yesterday that it is premature for any legislative
or regulatory changes that would reduce check-hold periods until a technological
infrastructure is more developed and checks are indeed clearing faster.
Under the Check Clearing for the 21st Century Act – or Check 21
– bank customers will retain the convenience of a check, receive
the efficiency of an electronic payment, and experience a reduction
in fraud, American Bankers Association Chairman Betsy Duke told the
House Financial Services’ Financial Institutions Subcommittee
yesterday. During the hearing, she also corrected some inaccuracies
about Check 21.
Hayes
Testimony
“Little has changed over the last six months since the Check Clearing
for the 21st Century Act (Check 21) was implemented,” ICBA Chairman
David E. Hayes told members of the House Financial Services Subcommittee
on Financial Institutions and Consumer Credit. “This is very much
an evolutionary process and has been appropriately referred to as a
marathon, not a sprint.”
Hayes, who is also president of Security Bank, Dyersburg, Tenn., cautioned
Congress that “a reduction in check-hold periods without the proven
history of faster check clearing and settlement will leave financial
institutions and their customers exposed to serious losses and sophisticated
fraud schemes.”
“Many of our member banks already make funds available to customers
earlier than required by the Expedited Funds Availability Act and Regulation
CC in the interest of good customer service and with the knowledge that
the flexibility exists to apply longer holds if warranted,” said
Hayes.
Hayes also stressed that Check 21 does not mandate electronic check
clearing, but provides flexibility, on a bank-by-bank basis, to adapt
to electronic check clearing over time without interfering with the
existing paper check process.
An ICBA survey conducted earlier this month about community banks’
implementation of Check 21 and its impact to customers shows 86 percent
of the banks responding are not currently using image technology to
clear and settle checks. Many institutions are waiting for intermediaries,
such as software providers or third-party processors, to develop the
software and complete the testing.
Of the banks that participated in the survey, 90 percent reported no
consumer complaints since Check 21 became law. The other 10 percent
reported consumer questions have been due largely to unfamiliarity with
substitute checks, confusion regarding ACH check conversion, and media
distortions of the potential loss of float.
See the full text of Hayes’ testimony at www.icba.org/pressroom,
and click on “Testimony.”
Duke
Testimony
“While the transition to electronic check-processing is a gradual
one, we believe that ultimately it will be beneficial to banks and their
customers,” said Duke, EVP, merger project team, Wachovia Bank,
Virginia Beach, VA.
“[S]ome consumer activists predicted 7 million checks would bounce
each month as a result of the more efficient processing of checks and
the commensurate reduction of float,” Duke said. “Nothing
like this has occurred or is expected to.” Stories claiming that
banks place extra holds on checks to avoid paying interest are “simply
untrue,” she added. “By law, banks must pay customers interest
as soon as the institution itself receives credit for a deposit.”
Read
the testimony.
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