Bankers Write In To Nix Amending Reg

The banking industry appears universally opposed to an initiative by the Federal Reserve Board to reduce the availability time on nonlocal checks to four days from five.

While all comments had not been processed by the agency by press-time, many trade groups and banks commenting said the agency should drop the idea. The comment period closed March 15.

Mandates on how long banks can hold up payment of checks were imposed by law in 1987, but the agency does have some discretion in extending or restricting the hold periods. In an advanced notice of proposed rulemaking published Dec. 14, the Fed said it is thinking of shortening the availability schedule for nonlocal checks from five to four business days, with institutions given the option of retaining the five-day schedule for some nonlocal checks. For those categories of checks, a bank must certify that it does not receive a sufficient proportion of returned checks within four days. The Fed also asked institutions to comment on the benefits and drawbacks to amending Reg CC, which governs the availability of funds and the collection of checks.

"Bank of America believes that regulatory and industry focus should continue to be on reducing or eliminating the delay of return information to depositing banks. This, in turn, would allow holds to be more closely tied to actual forward collection times," said Patrick Frawley, director of the bank’s regulatory relations department.

Sharon Royal, a lawyer for First Tennessee Bank, wrote: "The first thing for the Board to consider is simply the cost and disruption associated with requiring thousands of institutions to retrain their employees; to revise and replace hold notices to be furnished to customers; to revise documentation in which the institution’s Reg CC availability policy is explained; and reprogram computer systems "

"The congressional standard for determining whether to shorten the availability schedule–that two-thirds of the checks can successfully be returned within four days–has not been met, based on the Fed’s own survey," said Charlotte M. Bahin, regulatory counsel for America’s Communtiy Bankers. Moreover, she said, "Shortening the availability schedule would increase the probability of check fraud." That is because the Fed has suggested in its request for comments that banks would be required to make funds available even if they cannot determine whether sufficient funds exist to cover the uncollected balance of these checks, she said.

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