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Thursday, October 7, 2010

Expedited Funds Availability/Check-Holds

Pauline Smale
Analyst in Financial Economics

In 1987, Congress passed the Expedited Funds Availability Act (EFAA; P.L. 100-86, 101 Stat.563), which addressed the check-hold policies of depository financial institutions for various types of transaction accounts. The act was meant to ensure timely access to deposited funds and requires institutions to disclose to customers their funds availability policies. Federal Reserve Regulation CC implements the funds availability provisions and includes a schedule with maximum time limits for withholding funds.

The 2003 enactment of P.L. 108-100 (the Check 21 Act; 117 Stat.1177) refocused attention on the check-hold policies of financial institutions. This act made it easier for financial institutions to convert paper checks into electronically generated images and was aimed at making the clearing process between institutions faster and more efficient. Consumer advocates were concerned that the implementation of Check 21 would result in money clearing out of accounts faster without speeding up the availability of funds deposited into accounts. Check 21 required the Federal Reserve to study and evaluate the impact of the act on the clearing process. In April 2007, the Federal Reserve issued a report to Congress on the results of such a study. The Federal Reserve recommended making no changes to the prevailing funds availability policies. In the report, the Federal Reserve addressed the point that check holds would effectively be reduced as a result of the consolidation of the Federal Reserve’s check-processing sites. As of February 27, 2010, all check-processing operations are carried out at one location.

Consumer advocates have continued to urge Congress to reduce check holds by amending the EFAA. The Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) makes adjustments to the check-hold provisions of the EFAA. Additional changes would be made by two bills (H.R. 4936 and H.R. 1488) introduced in the 111
th Congress. No further action has been taken on either bill.

Date of Report: September 30, 2010
Number of Pages: 9
Order Number: RS22036
Price: $19.95

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