Check 21

The New York Times
October 31, 2004

Check This Out

Never content to pass savings along to customers, banks - with a little help from their friends in Congress - are again poised to turn a basic service into a profit center.

Last week, federal law [known as Check 21] began allowing banks greater latitude to process checks electronically, reducing to minutes or hours the time it takes for the money to be deducted from a check writer's account. But there is no change in the length of time that banks can hold deposited checks before making the funds available - up to two days for local checks, five days for nonlocal checks and 11 days for checks over $5,000. So in addition to saving an estimated $2 billion a year in paper processing costs, the banks will make loads of money on the float.

And not just from that. By processing checks faster while placing holds on deposits, banks are increasing the chances of bouncing a check. As banks start using the new procedures, unsuspecting consumers will bounce an estimated seven million more checks a month and pay an additional $170 million in monthly bounced-check fees. Worse yet, to promptly correct problems that may arise from electronic processing, such as double payment of a single check or payment in the wrong amount, the new rules require a customer to present a copy of the check's electronic image, known as a "substitute check." There's nothing to prevent a bank from charging a fee for providing the copy.

Groups like Consumers Union and the Consumer Federation of America have come out strongly against the law's lack of customer protection. The banks should listen. At the least, banks that use the new electronic procedures should adopt a no-hold policy for deposits by customers with problem-free accounts. If the banks do not change their policies, the Federal Reserve should force them to by changing the rules on fund availability. We would also like to see a major bank step up and pledge to re-credit accounts within 10 days of a customer's reporting an error, without the need for a substitute check. That would, in effect, extend the same protection to electronically processed checks that debit cards enjoy, as well as set a standard of customer service for other banks to match.

Banks do not have to gouge their customers just because the law permits it.