Federal Reserve Board Plans Study
of Check 21 Impact
The Federal Board plans to conduct the survey assessing the impact of Check 21 in order to comply with requirements of the Act, but also to examine the post-Check 21 evolution of the check processing system and to determine whether reducing the hold periods in Regulation CC is necessary.¹
Section 16 of the Check 21 Act requires the Federal Reserve Board to study the implementation of the law and to report the results of the study to Congress by April 28, 2007, specifically requiring a study of:
- "The percentage of total checks cleared in which the paper check is not returned to the paying bank.
- The extent to which banks make funds available to consumers for local and non-local checks.
- The length of time within which depositary banks learn of the nonpayment of local and non-local checks.
- The increase or decrease in check-related losses over the study period.
- The appropriateness of the time periods and amount limits applicable under sections 603 of the Expedited Funds Availability Act, as in effect on the date of enactment of this Act."¹
The current plans are for a survey that ".would be a random sample of approximately 3,000 financial institutions selected from a universe of about 18,100 commercial banks, savings institutions and credit unions. The sample would be stratified based on size as measured by the level of transaction deposits obtained from the most recent Report of Condition and by entity type (commercial bank, savings institution and credit union). No institution with less than $1 million in transaction deposits would be selected for the survey."¹
"The proposed survey would have five sections:
- Section I collects general information on the depository institution (i.e., name, address, contact person).
- Section II consists of seven questions related to check fraud losses and recoveries. Instances of losses and recoveries would be measured from a bank's role as the bank of first deposit and the paying bank. Banks would also be asked if these instances increased or decreased compared with the previous year.
- Section III consists of two questions on the volume of checks, both as the bank of first deposit and the paying bank.
- Section IV consists of five questions pertaining to funds availability policies and practices for next-day availability, local and nonlocal checks.
- Section V consists of three questions pertaining to the institution's experience with returned checks."¹
". The Board plans to distribute the survey no later than March 1, 2006. Responses would be due by May 1, 2006."¹
". In April 2005, ICBA surveyed its members to learn more about community banks' implementation of Check 21 and its impact on customers. Almost 400 community banks throughout the country, representing all charter types and various asset sizes, responded to this survey. The survey also included questions regarding community banks' funds availability policies and practices and check losses."¹
"Survey responses revealed that many more fraud schemes are resulting in significant losses to community banks because next-day availability is generally required for certain checks -- U.S. Postal Service money orders, U. S. Treasury checks, cashier's checks, and official bank checks. Fraudulent postal money orders and cashier's checks have become a chronic problem for community banks. ICBA has noted a substantial increase in FDIC Financial Institution Letters regarding fraudulent cashier's checks and official bank checks."¹
