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ICBA Cautions Congress on Rushing to Shorten Check-Hold Periods

WASHINGTON, D.C. (April 20, 2005) - The chairman of the Independent Community Bankers of America (ICBA), told Congress today 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.

"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."