[Federal Register Volume 64, Number 133 (Tuesday, July 13, 1999)]
[Proposed Rules]
[Pages 37708-37713]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17679]
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FEDERAL RESERVE SYSTEM
12 CFR Part 229
[Regulation CC; Docket No. R-1031]
Availability of Funds and Collection of Checks
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Advance notice of proposed rulemaking; withdrawal.
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SUMMARY: In December 1998, the Board issued an advance notice of
proposed rulemaking requesting comment on the potential benefits and
drawbacks of a modification to its Regulation CC that would shorten the
maximum hold for many nonlocal checks. This modification would shorten
the availability schedule for nonlocal checks from five to four
business days, except that a depositary bank could retain a five-day
availability schedule for subcategories of nonlocal checks for which it
certifies that it does not receive a sufficient proportion of returned
checks within four business days. This proposal was one of several
possible alternatives for defining subcategories of nonlocal checks
that would be subject to a shortened availability schedule. The Board
has concluded that return times for nonlocal checks do not support a
reduced availability schedule for nonlocal checks in the aggregate at
this time. The Board has also determined that the costs and potential
risks would outweigh the likely benefits of establishing subcategories
of nonlocal checks for availability purposes at this time. Therefore,
the Board has decided not to propose any specific regulatory changes at
this time to reduce the nonlocal check availability schedule.
FOR FURTHER INFORMATION CONTACT: Jack K. Walton II, Manager, Check
Payments Section (202/452-2660) or Michele Braun, Project Leader (202/
452-2819), Division of Reserve Bank Operations and Payment Systems;
Stephanie Martin, Managing Senior Counsel (202-452-3198), Legal
Division. For the hearing impaired only, contact Diane Jenkins,
Telecommunications Device for the Deaf (TDD) (202/452-3544).
SUPPLEMENTARY INFORMATION:
Background
As a result of concerns about some banks' practice of delaying
funds availability by placing holds on the proceeds of checks deposited
into customers' transaction accounts, Congress passed the Expedited
Funds Availability Act (EFAA) in 1987.1 The EFAA specifies
maximum time limits on the holds that banks may place on funds
deposited into transaction accounts.
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\1\ 12 U.S.C. 4001-4010. As used in this notice and in
Regulation CC, the term bank includes commercial banks, savings
institutions, and credit unions. Depositary bank refers to the bank
of first deposit (see 12 CFR 229.2(e) and (o)).
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The EFAA funds availability schedules attempt to balance banks'
concerns about managing their risk with consumers' concerns about the
availability of their funds. Congress recognized that banks would be
exposed to risks if they were required to make funds from a check
available before they had a reasonable opportunity to learn that the
check was returned unpaid. To balance depositors' interest in receiving
prompt access to their funds with banks' ability to manage their risks,
the EFAA directed the Board to consider improvements to the check
processing system that would speed the collection and return of
checks.2 In addition, the EFAA required the Board to reduce
the statutory funds availability schedules to as short a time as
possible and equal to the period achievable under the improved check
clearing system for a depositary bank to reasonably expect to learn of
the nonpayment of most items for each category of checks.3
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\2\ 12 U.S.C. 4008(b) and (c).
\3\ 12 U.S.C. 4002(d)(1).
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The Board's Regulation CC (12 CFR part 229), which implements the
EFAA, includes maximum availability schedules for funds deposited into
transaction accounts as well as provisions designed to accelerate the
check return system. The regulation's availability schedules
incorporate several provisions in the EFAA where Congress deemed that,
in certain cases, a longer time was necessary to provide a reasonable
amount of time for a
[[Page 37709]]
depositary bank to learn of a returned check before having to make the
funds from that check available for withdrawal. For example, the
schedules provide for a one-day schedule extension for checks deposited
in Alaska, Hawaii, Puerto Rico, and the Virgin Islands that are payable
by a bank located in another state or territory.4 Similarly,
the EFAA provides a one-day extension for making certain funds
available for withdrawal by cash or similar means.5
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\4\ 12 U.S.C. 4002(d)(2); 12 CFR 229.12(e).
\5\ Under the ``cash-withdrawal rule,'' the depositary bank may
extend the holds on local and nonlocal checks for purposes of making
funds available for withdrawal by cash or similar means. The
depositary bank may extend the hold until 5:00 p.m. on the normal
availability day for the first $400 of the deposit and until the
following business day for the remainder of the deposit. See, 12
U.S.C. 4002(b)(3); 12 CFR 229.12(d).
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The availability schedules in the EFAA and Regulation CC apply to
three broad categories of checks. Certain ``low-risk'' checks drawn or
guaranteed by credit-worthy institutions, such as cashier's checks,
teller's checks, certified checks, and government checks, generally
must be made available for withdrawal on the next business day
following the banking day of deposit. Local checks (checks payable by
banks located in the same check processing region as the depositary
bank) generally must be made available for withdrawal within two
business days. Nonlocal checks (checks payable by banks located in
different check processing regions than the depositary bank) generally
must be made available for withdrawal within five business
days.6
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\6\ Under Regulation CC's temporary availability schedule, which
was in effect from September 1, 1988, through August 31, 1990, funds
deposited by most local checks had to be made available for
withdrawal within three business days, and nonlocal checks had to be
made available for withdrawal within seven business days. Other than
the change from the temporary to the current permanent schedule, the
EFAA's local and nonlocal check availability schedules have not been
modified since the EFAA was enacted. During this period, the Federal
Reserve has consolidated several of its check processing regions,
listed in Regulation CC's appendix A, which has resulted in some
checks being reclassified from nonlocal to local. Thus, the
availability that must be accorded to some deposits has improved.
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Pursuant to the EFAA's direction to reduce the statutory schedules
when banks can reasonably learn of the return of most items in a
category of checks within a faster time, the Board adopted Appendix B
of Regulation CC. Appendix B requires depositary banks within certain
check processing regions to make certain nonlocal checks available
within a faster time period than that required by the EFAA. Current
appendix B requires depositary banks in the Utica, Nashville, and
Kansas City check processing regions to make selected nonlocal checks
available for withdrawal within three, rather than five, business
days.7 The Board formulated these reduced schedules in 1988
through a relatively informal process in which each Federal Reserve
Bank check processing office estimated which nonlocal checks that were
deposited in banks in its region could be collected and returned faster
than the prescribed EFAA maximum hold period. These estimates were
based on the Reserve Bank's knowledge of geographic proximity between
certain banks or robust transportation networks and projected
improvements in return times that would result from requirements
intended to speed the return of unpaid checks.
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\7\ A more extensive set of reduced schedules for nonlocal
checks was in effect during the temporary schedule period from
September 1, 1988, to August 31, 1990.
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1998 Proposal
After a decade of experience with the post-Regulation CC check
collection and return system, the Board undertook a study of whether a
more rigorous approach to reducing nonlocal check schedules would be
appropriate and what the relative costs and benefits of such an
approach would be. For guidance on the conditions under which it would
be appropriate to reduce the availability schedules, the Board looked
to the 1987 Conference Report on the EFAA.8
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\8\ H.R. Conf. Rep. No. 100-261 (1987).
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The Conference Report tied availability schedules to banks' ability
to reasonably expect to learn of the nonpayment of a significant number
of checks. The Report suggested that if improvements in the check
clearing system make it possible for two-thirds of the items in a
category of checks to meet this test in a shorter period of time, then
the Board must shorten the schedules accordingly.9 The
Report also recognized that geographic proximity or transportation
arrangements between check processing regions would permit the Federal
Reserve to provide shorter times than the general schedule for nonlocal
checks would require. The Report noted that shorter times would be
possible for checks transported between such nearby territories as New
York City and Jericho, Long Island, and for checks transported between
banks in cities with Federal Reserve check processing offices, such as
banks in Boston and San Francisco.10
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\9\ Id. at 179.
\10\ Id.
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In considering whether nonlocal checks overall met the Conference
Report's ``two-thirds'' test, the Board drew on data from four surveys
conducted by the Reserve Banks between 1990 and 1997. In general, the
more recent surveys showed that over 80 percent of nonlocal unpaid
checks were returned to the depositary bank within five business days
after the day of deposit, and 60 to 65 percent of unpaid nonlocal
checks were returned within four business days. (The surveys are
discussed in more detail below.)
In addition to examining nonlocal checks as a single broad
category, the Board also began investigating whether it would be
appropriate to define subcategories for various types of nonlocal
checks and specify maximum availability schedules for these
subcategories. One means of establishing subcategories of nonlocal
checks would be for the Board to make subcategory determinations by
regulation. These determinations would require a trade-off between
precision in subcategory definition and the practical limitations of
the data collection needed to support the categorization. Identifying a
large number of subcategories of nonlocal checks should increase the
likelihood that the checks are accurately categorized based on when
they are returned. The greater accuracy afforded by a large number of
subcategories would lower the risk that funds from a particular check
would have to be made available by the depositary bank before it would
normally be returned. Similarly, a higher degree of accuracy would
increase the probability that customers would receive faster
availability for those checks for which the depositary bank learns of
the return before making funds available for withdrawal. Thus, a large
number of subcategories of nonlocal checks should provide a better
balance, as sought by Congress, between banks' needs to manage their
fraud-loss risk and their customers' interests in having as early
access to their funds as possible.
The Board explored alternative approaches for defining
subcategories of nonlocal checks that should receive earlier
availability. These approaches ranged from categorizing the almost
2,000 possible pairs of check processing regions to a more aggregated
approach that would group nonlocal checks into only three categories
nationwide based on the availability zone (city, RCPC, or country) of
the paying bank.11 Each
[[Page 37710]]
approach recognized the roles of geographic proximity and
transportation arrangements in the check clearing and return cycle. It
was not clear, however, what would be the most reasonable and cost-
effective way to identify those subcategories of nonlocal checks that
should receive earlier availability. Collecting data to support a valid
analysis of return cycles for nonlocal checks becomes increasingly
expensive and, in some cases, impractical as the number of
subcategories increases.
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\11\ In general, nonlocal checks payable by banks located
closest to Federal Reserve check processing offices are returned
fastest. Nonlocal checks payable by banks located further away
require somewhat more time. The locations are organized roughly in
concentric circles. City checks are payable by banks located
relatively close to a Federal Reserve office, RCPC checks are
payable by banks located somewhat further from a Federal Reserve
office, and country checks are payable by banks even more
geographically remote. Only eight of forty-four check processing
regions have country availability zones.
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The Board requested comment on an alternative approach for
establishing nonlocal check subcategories. Specifically, the Board
considered a self-certification system under which the general nonlocal
check availability schedule would be reduced to four business days, and
depositary banks could conduct their own surveys, if they believed it
would be cost-effective to do so, to determine the subcategories of
nonlocal checks that would be subject to five-day availability
schedules. This approach would match the bank's actual return
experience with availability schedules more precisely than any approach
that relies on data that the Reserve Banks could collect. Permitting a
bank to certify that it qualifies to use five-day availability
schedules for some subcategories of nonlocal checks could give it the
flexibility to weigh (1) the costs of collecting data with which to
certify that it should be permitted to hold certain subcategories of
nonlocal checks for five days, (2) the fraud risk associated with its
hold policy, and (3) the customer benefits of that policy.
The Board noted, however, the difficulty of obtaining a sufficient
sample to validate several of the available options for defining such
subcategories of nonlocal checks. If a bank determined that the
administrative cost associated with demonstrating that certain
subcategories of nonlocal checks should be subject to five-day
availability and the resulting increased complexity of its availability
schedules outweighs the incremental fraud protection, then it could
adopt a four-day or shorter schedule for all of its nonlocal check
deposits.
The Board requested comment on this self-certification approach in
an advance notice of proposed rule-making, issued in December
1998.12 The notice noted that the Board was also considering
other methods for defining categories of nonlocal checks that might
reasonably meet the congressional mandate.
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\12\ 63 FR 69027, December 15, 1998.
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Summary of Comments
General Comments
The Board received one hundred twenty-five comment letters in
response to the December 1998 advance notice of proposed rulemaking.
The following table shows the number of comments by the category of
commenter:
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Number of
Category of commenter responses
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Banks and bank holding companies............................ 99
Clearinghouses and associations representing banks.......... 21
Check processors............................................ 1
Federal Reserve Banks....................................... 4
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Total................................................... 125
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One hundred sixteen commenters opposed shortening nonlocal hold
periods. One commenter stated that it would support any reduction in
the hold period as a move to improve the image of banks in general. The
eight other commenters did not address the length of the nonlocal
availability schedule, but did comment on specific questions posed by
the Board about implementing the proposed self-certification process.
Eighty-two commenters cited increased risk of fraud loss as their
reason for opposing any proposal to shorten nonlocal hold periods. Many
commenters also stated that banks frequently maintain availability
policies that make funds available sooner than required by Regulation
CC.13 These commenters stated that although their banks
generally make funds available earlier than required, on a case-by-case
basis they withhold funds for the maximum permissible period. Several
of these commenters further stated that the checks for which they use
case-by-case holds are the ones with greatest risk for loss, so that
shortening the hold period by even one day could increase the risk of
loss dramatically. Other banks stated that they use the maximum
permissible hold period and that shortening the permitted hold period
would expose them to a potentially significant increase in check fraud
losses.
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\13\ These statements are consistent with findings reported in
studies conducted by the Board and the American Bankers Association.
In these studies, 70 and 86 percent of responding banks,
respectively, reported that they do not hold nonlocal checks for the
full period permitted under Regulation CC. Board of Governors of the
Federal Reserve System, Report to the Congress on Funds Availability
Schedules and Check Fraud at Depository Institutions (Board of
Governors, 1996), p. 36, and American Bankers Association, ABA 1998
Check Fraud Survey Report, (1998), p. 19.
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Eighteen commenters also stated that shortening nonlocal holds by
one day would provide little benefit to consumers, either because banks
already make most funds available more quickly than required or because
banks that use four-or five-day holds may release funds early if the
customer so requests and the banks can verify payment by contacting the
paying bank. Thus, these commenters argued, shortening the nonlocal
hold period by one day would not benefit many depositors.
Reasonable Time To Learn of Nonpayment
As noted above, the Board included in its notice data regarding
return times for nonlocal checks from four surveys. In 1996, the
Board's comprehensive survey of check-fraud losses at banks asked
respondents to indicate the proportion of returned checks that they
typically received on each business day following the initial deposit
of a check (1996 bank survey). In conjunction with that check-fraud
study, Federal Reserve staff also collected detailed data from a sample
of checks processed during one week through the Federal Reserve Banks
(1996 Reserve Bank survey).14 In 1997, Federal Reserve staff
repeated the Reserve Bank survey for six weeks and thereby increased
the number of nonlocal returned checks sampled compared with the prior
survey (1997 Reserve Bank survey).15 The results of the 1997
survey were generally consistent with those of the 1996 survey. For
historical comparison, the Board also reviewed a survey of checks
returned through the Reserve Banks conducted shortly after the
implementation of Regulation CC (1990 Reserve Bank
survey).16 The table below summarizes the average nonlocal
return
[[Page 37711]]
cycles observed in the 1990, 1996, and 1997 surveys.
\14\ Board of Governors of the Federal Reserve System, Report to
the Congress on Funds Availability Schedules and Check Fraud at
Depository Institutions (Board of Governors, 1996).
\15\ The 1997 survey was designed to provide a sufficient number
of checks to estimate the proportion of nonlocal checks returned
within four and five days nationwide. The sample was not intended to
provide statistically valid results between each possible pairing of
check processing regions throughout the country. (63 FR 69027,
December 15, 1998).
\16\ Board of Governors of the Federal Reserve System, The 1990
Report to Congress Under the Expedited Funds Availability Act (Board
of Governors, 1990).
Cumulative Percentage of Nonlocal Checks Returned Within Number of Business Days
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1997 1996 1990 Percent
Reserve Bank Reserve Bank 1996 bank Reserve improvement
survey \1\ survey \1\ survey Bank survey 1990-97
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3 business days.............................. 27.8 33.3 32.0 21.0 32.4
4 business days.............................. 59.9 64.1 64.9 47.0 27.5
5 business days.............................. 82.8 83.3 84.3 73.0 13.4
Number of nonlocal checks sampled............ 31,646 5,707 \2\ 773 NA NA
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\1\ Excludes outlier observations defined as nonlocal checks that exceed 15 business days. For example, the 1997
survey data exclude 1.6 percent of nonlocal checks sampled.
\2\ Reflects the number of commercial banks, savings institutions, and credit unions sampled.
Source: Board of Governors of the Federal Reserve System. See text notes 17, 18, and 19 for sources of data.
Twenty-nine commenters stated that, in the aggregate, the return
periods reported in the Board's notice indicated that banks did not yet
receive two-thirds of their returns within four business days. Fifteen
commenters stated that the average return cycle was shorter in 1996
than in 1997 and requested that the Board defer shortening the maximum
hold periods until the data showed that return times for nonlocal
checks, in the aggregate, clearly exceeded at least the two-thirds
threshold.
The way in which the Board presented the data in the 1998 notice
suggested that a nonlocal check that was returned to the depositary
bank on the fifth business day after the day of deposit afforded the
depositary bank a reasonable time in which to learn that the check was
returned before making funds available for withdrawal on that day.
Similarly, the notice could be read as assuming that if a nonlocal
check is returned on the fourth business day after deposit, it may be
appropriate to reduce the availability schedule applicable to that
check to four business days.
Several commenters, including the American Bankers Association,
argued that all banks need the ability to hold funds for one day beyond
the day on which they receive returned checks. These commenters noted
that Regulation CC requires that funds be made available at the start
of the business day on which the depositor must have access to funds
pursuant to the schedules, but unpaid checks typically are not
delivered until mid-day. As a result, the depositor might be permitted
to withdraw cash several hours before the bank knows that the check was
being returned.17 Therefore, they argued, banks should be
able to hold checks for one day beyond the day they can ``reasonably
expect to learn of the nonpayment of most items.'' Under this theory,
nonlocal schedules should not be reduced to four business days unless
two-thirds of nonlocal checks can be returned to the depositary bank by
the third business day after the banking day of deposit. The American
Bankers Association further argued that the extra day permitted for
cash withdrawals does not ameliorate this problem because the attendant
requirement that cash and check withdrawals be tracked separately is
not operationally feasible for most banks.
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\17\ 12 CFR 229.19(b). Specifically, funds must be made
available for withdrawal by the later of 9:00 a.m. (local time of
the depositary bank) or the time the depositary bank's teller
facilities (including ATMs) are available for customer-account
withdrawals.
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In addition, seven commenters argued that the two-thirds threshold
suggested by the legislative history was inadequate and that receiving
as many as one-third of returned checks back after the maximum
permissible hold period would expose banks to more risk than they
considered acceptable. One commenter cited the statutory language that
requires shorter schedules where the depositary bank can reasonably
expect to learn of the nonpayment of ``most'' items and argued that, as
interpreted by several courts in other contexts, ``most'' means an
amount more significant that two-thirds, and the Conference Report
language should not be considered controlling.
Twenty-four commenters provided data on their return experiences.
Some commenters provided explicit surveys of their return items, while
others asserted that some items took six or more days to be returned
and, therefore, they opposed reducing the permissible hold period.
These banks also noted the difficulty they had collecting
representative data and explained that this was an expensive, labor-
intensive, manual process.
Several smaller institutions pointed out that they use one or more
intermediaries to process and collect checks, which tends to add at
least one day to the collection process, and that they would be
particularly disadvantaged by shortened hold periods for nonlocal
checks. The National Association of Federal Credit Unions stated that
shorter nonlocal hold periods would have a disproportionately negative
effect on credit unions because credit unions are less likely than
commercial banks to receive returned checks within four business days.
Subcategories of Nonlocal Checks
In general, the commenters stated that there were difficulties
associated with an availability policy that includes subcategories of
checks. Seven commenters stated that creating subcategories of checks
within the categories of next-day, local, and nonlocal checks would
greatly increase the complexity of the regulation, the cost of
implementation, and the difficulty of adequately disclosing banks'
availability policies to consumers. These commenters also stated that
they could not reliably collect data on check return patterns beyond
the existing categories of checks.
Some of these commenters further stated that the EFAA established
the check categories and does not require the Board to further
subdivide those categories. The American Bankers Association stated
that the most obvious meaning of ``category of checks'' in the EFAA is
provided by the statute (that is, next-day, local, and nonlocal
checks), on which the statutory funds availability schedules are based.
Many commenters stated that it would be important to disclose
availability policies to depositors thoroughly. The American Bankers
Association stated, however, that creating a more complex, changeable
system would confuse consumers when one of the main purposes of the
statute was to inform consumers. Most commenters expressed similar
views,
[[Page 37712]]
stating that existing availability schedules were complicated to
explain to depositors and that policies that differentiate among
categories of nonlocal checks would be more confusing.
Forty-two respondents stated that administering holds for
subcategories, implementing the proposed self-certification process,
making any change to availability schedules, and training clerical
staff on current hold and disclosure policies would be excessively
costly. Fifty-two commenters stated that Regulation CC was already very
complex and that training staff to properly administer the regulation
presented a continuing problem. These commenters argued against any
changes that might increase the cost or complexity of implementing or
explaining the Regulation's provisions.
Thirty-four commenters commented on the proposed self-certification
procedure. Generally, commenters indicated that banks would be unlikely
to use the self-certification option because of its complexity and
implementation cost, and that they would simply use shorter hold
periods or shorter case-by-case holds despite the potentially increased
risk.
Conclusions
Reasonable Time to Learn of Nonpayment.
Although the EFAA requires the Board to reduce availability
schedules based on improvements in the check collection process, the
EFAA states that such reductions should be made when depositary banks
can reasonably expect to learn of the nonpayment of most items subject
to the reduced schedules. Other provisions of the EFAA, such as the
extended schedules allowed for cash withdrawal purposes and for certain
checks deposited outside the continental U.S., indicate that Congress
meant to protect depositary banks from undue risk that might accompany
the EFAA's maximum availability schedules.18 Thus, the EFAA
attempts to balance the interests of depositors in receiving prompt
availability of funds against the risks to depositary banks of making
funds available before learning that checks have not been paid.
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\18\ The Act also permits depositary banks to extend holds under
certain exception situations, such as when a deposit is over $5,000
or when a bank has reasonable cause to doubt the collectibility of a
check. These exception holds are not based on the amount of time it
takes to collect and return the particular check, indicating that
Congress may have presumed that, in the normal course of events, a
significant number of checks would not be returned in time to
provide the depositary bank with protection within the regular
availability schedules, making these exception holds necessary.
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Although the discussion of the survey data in the Board's December
1998 notice was based on the premise that a depositary bank should be
able to make funds available from a check on the day it would normally
receive the return of that check, the Board has reconsidered that
reasoning. The Board believes that the depositary bank can reasonably
expect to learn of the nonpayment of most items only if it learns of
the returned checks in time to take action before funds are required to
be available for withdrawal. Generally, banks receive returned checks
around midday. Banks require time to process the unpaid checks and post
entries to depositors' accounts. Under the EFAA, $400 in cash must be
made available not later than 5:00 p.m. on the day that funds are to be
made available for other purposes. While banks are permitted to delay
by one more day the withdrawal of additional amounts by cash or similar
means, it is costly and perhaps operationally not feasible for banks to
treat cash and check withdrawals differently. Accordingly, banks appear
to make funds available for withdrawal by cash at the opening of
business on the same day on which they make funds available for other
purposes. If the schedule is shortened so that the depositary bank is
required to make funds available at the opening of business on the day
that it receives the returned check, it may need to make funds
available several hours prior to receipt of the check and before it is
able to post the returned check to the depositor's account.
Accordingly, the Board has reconsidered the time frame within which the
``two-thirds'' test is relevant. The Board believes that, before
availability schedules are reduced for a category (or subcategory) of
checks, a depositary bank should be able to learn of the return of most
checks in that category in time to prevent depositors from withdrawing
funds from the checks. The data from the surveys shows that, on an
aggregate basis for nonlocal checks, the proportion of nonlocal checks
returned to banks within three business days was well below the two-
thirds envisioned by Congress. In addition, although the proportion of
nonlocal checks returned within four business days after deposit was
close to two-thirds, it remained slightly below that threshold. The
Board has concluded, therefore, that it would not be appropriate to
reduce the general availability schedule for nonlocal checks five to
four days at this time. This determination does not foreclose the
possibility that improvements in the check return system or in posting
systems might lead to a shortening of the general availability schedule
in the future.
Subcategories of Nonlocal Checks
After reviewing the comments on the difficulties of implementing
differing availability schedules for subcategories of nonlocal checks,
the Board has determined that the costs and difficulties of
establishing such subcategories, in addition to those already specified
in appendix B of Regulation CC, would outweigh the likely benefits. As
stated by the commenters, creation of subcategories of nonlocal checks
would increase depositary bank costs significantly, particularly in the
area of employee training and operations changes. These costs would
increase regardless of whether the subcategories were established by
regulation or by a self-certification process, although depositary
banks would bear additional costs under the latter
process.19 In addition, the commenters expressed concern
that increasing the complexity of the availability schedules would also
increase confusion for depositors and bank employees. The Board also
notes that most banks do not appear to impose the maximum permissible
hold periods, thus reducing the apparent potential benefits to
depositors of reducing the nonlocal hold period.
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\19\ Moreover, as some commenters stated, it is not clear that
the EFAA requires reduced schedules for subcategories of checks.
Although the EFAA does not define ``categories of checks,'' some
commenters argued that the Board should rely on the categories of
checks delineated in the EFAA and that the EFAA does not direct the
Board to define additional check categories. The 1987 Conference
Report, however, provided an example using subcategories of nonlocal
checks.
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Furthermore, it would be difficult to determine specific categories
of nonlocal checks that should be subject to a shortened availability
schedule. While Reserve Bank estimates based on geographic proximity or
robust transportation networks formed the basis for including specific
categories of checks in appendix B, the basis for determining
additional categories of nonlocal checks subject to shortened
availability schedules in a comprehensive way would be more complex.
Optimally, statistical sampling of data from returned checks would
provide a valid estimate of the number of returned checks with
reasonable confidence intervals around the estimates. Collecting such
an optimum sample of returned nonlocal checks, however, is not simple.
First, because most checks are local, the sample size
[[Page 37713]]
would have to be very large to obtain a sufficient number of nonlocal
checks. Second, as the number of subcategories of nonlocal checks
increases, the number of checks that need to be sampled increases as
well. It may be virtually impossible to collect a sufficient number of
checks between certain regions of the country owing to the limited
number of checks returned between them. Further, collecting the data is
a costly and time-consuming process. The information on returned checks
needed for a survey must be collected manually from the back of checks
and is often overprinted, lightly printed, and otherwise difficult to
read. Data collection is further complicated by processing schedules.
Returned checks become available to be sampled during peak processing
periods in the middle of the night when bank staff have very limited
time to collect the required data without slowing the return of those
checks to the depositary bank.
Accordingly, the Board has decided not to establish different
maximum availability schedules for additional subcategories of nonlocal
checks. Although the Board has decided not to propose any specific
regulatory changes at this time to reduce the nonlocal check
availability schedule, the Board will continue to monitor the time
periods needed to return unpaid nonlocal checks and may consider
further action if return times improve significantly.
By order of the Board of Governors of the Federal Reserve
System, July 7, 1999.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 99-17679 Filed 7-12-99; 8:45 am]
BILLING CODE 6210-01-P
