ICBA - News - News Release - House Committee on Financial Services' Check 21 Concerns Premature
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House Committee on Financial Services' Check 21 Concerns Premature

Washington, D.C. (Dec. 7, 2004) - Independent Community Bankers of America (ICBA), the nation's largest banking trade organization, said today that concerns of members of the House Committee on Financial Services over the implementation of Check 21 are premature.

The House committee conveyed its concerns in letters to Federal Reserve Chairman Alan Greenspan and financial trade associations. The committee members called for the industry to shorten the hold periods for deposited checks as check clearing times shorten as more banks implement Check 21. 

"Check 21 has been in effect for only six weeks," said Viveca Y. Ware, director of payments policy for ICBA. "It's a bit premature to say that checks are clearing faster overall. While Check 21 provides the legal framework to eventually speed up the check processing time, the technological infrastructure is still developing." 

Ware said substitute checks clearing electronically currently account for a minuscule amount of checks processed in the United States. "Right now the industry is slowly adopting Check 21," she said. "The cost of implementation is high, and many banks that have purchased the technology are implementing it slowly to fully understand the impact it will have on their operations and customers. Currently, banks give next-day availability on most deposited checks, even though the minimum required by law is two days."

In addition, ICBA noted that Check 21 requires the Federal Reserve Board to study the law's impact, banks' funds availability practices, and the appropriateness of existing funds availability policies. The agency is required to make recommendations for legislative action by April 28, 2007.  Current federal law also requires the Federal Reserve Board to reduce check hold periods whenever check-processing times improve.  "Congress should give the Fed a chance to do its job," said Ware.

Check 21, which went into effect on Oct. 28, 2004, allows collecting financial institutions to truncate paper checks, process them electronically and create paper substitute checks for those paying banks desiring to continue receiving paper.  ICBA will continue to monitor member implementation of Check 21.