ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Thursday, January 16, 1997 TAG: 9701160026
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
DATELINE: NEW YORK
SOURCE: Associated Press
Buried in the mountain of requests before Congress is one from the Federal Reserve that would give banks an extra day to clear local checks.
Critics charge that the measure, if approved, could cost consumers millions of dollars in bounced-check fees.
The issue hits a hot button with consumer groups, which think checks deposited in consumers' bank accounts should be made available quickly.
The Fed, the nation's central bank, has asked Congress to amend 1987 legislation that requires banks to make funds from deposited local checks available within two business days.
Banks often guard against check fraud by not releasing the money until a check has cleared, which, thanks to modern technology, can happen quickly, sometimes the same day.
``A check can be cleared and credited with almost the snap of a finger,'' said Mark Green, public advocate for New York City. ``If anything, the Federal Reserve should be looking at ways to give people faster access to their own money - not devising ways to force customers to subsidize banks.''
But because the Fed's clearing system is still based on moving paper from bank to bank, the Fed says banks need three days to make sure a check is good.
Two banks operating in the Roanoke region are not aware of the proposal, although both use the Federal Reserve system to clear checks, officials said Wednesday.
David Scanzoni, spokesman for First Union National Bank, said his company would take no position because the matter is pending before Congress and the Federal Reserve.
But Cheryl Jenkins, spokeswoman for Crestar Bank, said her bank doesn't need an extra day for local checks. She said a day or two is enough for a local check, and "we try to do it a bit quicker than that."
Some consumer advocates and banking experts contend that revising the local-check rule would do little to intercept bad checks. Most check fraud is forged signatures, which are not caught by the check clearing system.
Instead, the consumer advocates said, it would inconvenience consumers, who, unaware of the change, might bounce more checks.
For low-income consumers, an extra day's hold on their checks can mean paying the rent late, or not having enough for groceries or medical prescriptions, critics said.
And, they argued, it would raise banking costs to low-income people, who would be forced to turn to expensive check-cashing services to get quick access to their paychecks.
Another issue is how much extra money financial institutions can earn by holding on to deposited funds for another day and investing them at the overnight bank rate, currently just over 5percent.
Martin Mayer, a fellow at the Brookings Institution, estimates that U.S. financial institutions would make $250million to $300million a day by keeping the funds another day. Fed officials could not confirm or dispute the figure.
Staff writer Mag Poff contributed to this report.
LENGTH: Medium: 62 linesby CNB