Despite objections from the Federal Reserve Board, House Banking Committee Chairman Fernand St Germain (D-R.I.) yesterday vowed to go ahead with legislation to limit the number of days banks can "hold" funds deposited to checking accounts.
The bill, which has over 150 sponsors, would establish temporary limits of between one and nine days for such holds. On the second business day after deposit, a bank would have to allow its customers access to all funds from checks written on local banks or any government entity as well as those under $100. Out-of-town checks for more than $100 could be held longer. Lengthier holds could be placed if the deposit totaled more than $5,000 or the depositor were new to the bank.
Moreover, the bill would direct the Fed to develop within five years a system whereby all checks drawn on local banks would be available on the next business day and all other checks available within three business days.
Fed Vice Chairman Preston Martin agreed with St Germain that progress in the private sector has been too slow. However, he pleaded that writing such a schedule into law would require a multibillion-dollar outlay to implement and that would inevitably lead to higher service fees for customers. Instead of a schedule, Martin called for mandatory disclosure of check hold policies by financial institutions.
During two days of testimony this week, witnesses differed strongly on the percentage of checks that are subject to holds and how much of a problem that presents for customers. J. Kenneth Glass, representing the American Bankers Association, cited a California banking commissioner's study that fewer than one of every 1,000 deposited checks was subjected to a hold. Yet Martin cited a 1985 Fed survey done by the University of Michigan showing that 15 percent of families reported delayed funds availability problems, up from 13 percent in 1983.
Four consumer organizations testified yesterday that the majority of banks impose holds. Congress Watch reported that 35 percent of Washington banks hold D.C. checks for five or six days, while holds on Maryland and Virginia checks range from one to 10 days.