Consumers Union

Support the Consumer Checking Account Fairness Act
(Representative Carolyn Maloney)

The Problem: The new federal Check 21 law facilitates the electronic clearing of checks, which means that checks consumers write will clear sooner, so money will leave consumer’s accounts sooner. However, banks, thrifts, and credit unions are allowed to continue to place the same long check holds on consumer’s deposits. Money will leave consumer accounts faster, but become available at the same old pace. Under current check hold rules, a paycheck deposited on Friday doesn’t have to be available to pay checks until the following Tuesday. Funds from a paycheck deposited on a Friday evening don’t have to be made available to pay checks until the next Wednesday, even if the check has in fact already cleared. If the paycheck is a “nonlocal” check, funds deposited on Friday can be held by the bank until the next Friday. A paycheck deposited on Friday evening can be held until a week from Monday – through two weekends, for a total of ten calendar days.

Current check hold times, combined with the speeding up of check processing due to Check 21 and other forms of electronic check processing, create real problems for consumers. For example, Jane Doe gets paid on Friday, deposits her paycheck on Friday, and writes a check at the grocery store the next day. The check written to the grocery store on Saturday clears on Sunday or Monday, but because Jane’s bank puts a hold on her deposit, her paycheck funds can’t be used to cover her checks until the following Tuesday. If Jane’s employer uses a nonlocal bank to issue her paycheck, Jane’s bank can make her wait even longer – a whole week – before her pay is available to cover the checks she writes. Even if Jane’s paycheck actually clears within a day or two, her bank does not have to lift the hold. Instead, Jane’s bank can do one of the following:

(a) bounce her check and charge her a “non-sufficient funds” (NSF) fee of $20 to $35. The grocery store may also charge a returned check fee.

(b) clear the check but charge a $20 to $35 “bounce protection” fee, and possibly a per day fee as well for each day before deposited funds are available to cover the check. Bounce protection may be a service she has never requested – and it may be invoked by the bank even though Jane had made a deposit to cover the check before writing the check.

This is patently unfair to consumers. Banks, thrifts, and credit unions (we’ll call them “banks” here) benefit from faster check-processing facilitated by Check 21. They should also have to give their customers faster credit for deposits. Check holds times should be shortened, so consumers can use their deposits to cover the checks they write after making a deposit.

Check 21 only required that the Federal Reserve Board study check hold times, and gave the Federal Reserve Board until March 2007 to finish that study.

The Solution: New York Representative Carolyn Maloney’s “Consumer Checking Account Fairness Act,” solves this problem for consumers. The bill:

  • Reduces check hold times to no more than two business days for consumer deposits of up to $7,500.
  • Counts Saturday as a business day toward the check hold period if the bank takes money out of consumer accounts on Saturdays.
  • Requires banks to process credits before debits, that is, to apply deposits before deducting checks.
  • Prevents banks from charging bounced check fees when the deposit to cover the check has actually cleared but the hold period has not yet been completed.
  • Increases the “small check” amount, for which there is faster funds availability, from $100 to $500.
  • Requires banks that wish to charge for so-called “bounce protection” to get the consumer to ask for this feature before charging fees to the consumer for it.
  • Requires that banks who choose to charge a fee for a “substitute check” under Check 21 cannot insist that the consumer get a substitute check before invoking the right to have the bank put funds missing due to a processing error back into the consumer’s account within ten business days.

The Consumer Checking Account Fairness Act is balanced and sensible. For example, it leaves in place the ability of a bank to impose a longer hold period for special circumstances, such as a new account or a recent history of bounced checks on an account. Also, the bill does not require banks to issue “substitute checks” under the Check 21 law without any fee; instead it simply says that if the bank decides to charge for the substitute check, then the bank can’t insist that the consumer get that document in order to exercise the consumer right to a ten business day timeframe to get back funds lost due to a check processing problem, such as a check being paid twice.


Support the Consumer Checking Account Fairness Act, to make funds available in consumers’ account faster so that consumers get some of the advantage of faster check clearing times under Check 21

For more information on Consumers Union’s position in support of the Consumer Checking Account Fairness Act, please contact: Gail Hillebrand at 415 431-6747.