Is Consumer Protection Law Necessary Post-Check 21?

Opinion: Fear, uncertainty and doubt were typical reactions on the part of consumer advocacy groups when the Check Clearing Act for the 21st Century was passed. Can the banking industry avoid being targeted with new laws in its wake?

The initial reaction by consumer groups to Check 21, the Check Clearing Act for the 21st Century, was dismay and distrust. Combined with that was the certainty that the banking industry was trying to rip consumers off by taking advantage of the "float" period, the time between when payment is taken from the paying customers bank account and when it arrives in the recipients account.

Rafael Ayuso, spokesperson for Consumers Union, says, "The new law is expected to save approximately $2 billion a year for banks, but nowhere have we had any assurances that this money will be passed along to consumers."

Check 21 can reduce the time it takes to deduct money from a check writers account, but it doesnt require banks to move the money over to the recipients account any faster. In response, Congressional Representative Carolyn Maloney (D-N.Y.) introduced HR 5410, called the Consumer Checking Account Fairness Act, which requires the Federal Reserve to exercise its authority to reduce the time banks can hold deposits to reflect the faster times checks clear under Check 21.

/zimages/4/28571.gifCould Check 21 lead to mass fraud? Find out here.

Maloneys proposal also prohibits a bank from charging a bounced check fee if the funds are in fact in the account, even if the deposit hold period has not passed. It requires banks to clear deposits before checks presented on the same day, and requires banks that clear checks on Saturdays to count Saturday toward the deposit hold period.

One piece of Maloneys proposed law amends Section 607 of the Expedited Funds Availability Act (12 U.S.C. 4006) by adding a subsection that requires banks to post transactions that increase the account balance before posting transactions that decrease it. This section is to be applied only to checking accounts that are used primarily for personal, family or household purposes.

Most banks already differentiate between personal and business checking accounts, so it shouldnt be a big stretch for bank back offices to post those deposits before withdrawals. Thats standard practice already, for the most part.

Banking officials have said, in the run-up to Check 21, that they would primarily use image replacement documents (IRDs) to speed large transactions. The limited evidence available to date supports the earlier assumptions that the large business-to-business transactions are the ones being expedited.

Next Page: Calming consumer fears.