January 07, 2005

I can hear the campaign ads already: "Congressman So-and-So voted for Check 21 to help the big banks collect your money faster when you deposit a check," intones The Voice. "But when it came to the Consumer Checking Account Fairness Act (see article, page 18) and extending that benefit to working families, where was Congressman So-and-So?"

But there's a flaw in the CCAF Act: It explicitly makes a connection between Check 21 and hold times, even though the two are unrelated. Banks weren't exactly waiting around for Check 21 in order to speed up collection times. Check 21 simply eliminates the formality of a piece of paper at the end of the process.

I get an out-of-state expense check every month from the same exchange-listed company and deposit it locally. Four days later, my account is finally credited.

Will Check 21 ever help me to get my funds faster? No, because the two $700-billion-plus banks involved already exchange the funds electronically within 24 hours using the "image with paper-to-follow" process. Since positive-pay verification ensures the validity of the check with my employer, the risk to the banks is virtually nil. But still, I have to wait the entire four days, giving my bank the chance to earn float interest, and possibly overdraft fee revenue if I make a bookkeeping error.

To be sure, certain situations - suspected fraud, stopped payments or court orders - require additional time, and so the four-day hold period is a reasonable outer bound. But that doesn't mean that banks should always wait until the last minute just because they can.

The policy question, then, is how to convince banks to serve consumers better without removing their incentive to invest in faster operations. The common-sense answer: Let the market decide.

Be it enacted: "Upon depositing a check at a bank or an ATM, the depositor shall receive a receipt upon which shall be printed, in the default typeface, 'This deposit will be credited no later than (date),' and 'If you attempt to draw upon these funds before then, you may be assessed a fee of (amount).'"

Encourage banks to compete on speed using increased disclosure as a spur and hold times just may disappear.