Fed Reluctant but Backs Bill on Check Holds

Governors of the Federal Reserve System reluctantly support legislation that would force banks to tell their customers in advance how long they have to wait before writing checks on their deposits, Fed Vice Chairman Preston Martin told a House panel Thursday.

But Martin said the Fed still opposes writing into law a timetable on so-called check holds, and he said that, if Congress wants nationwide guidelines, it should let the Fed determine them through regulation.

However, House Banking Committee Chairman Fernand J. St Germain (D-R.I.) told Martin that Congress is determined to restrict the hold period.

“We’re not going to give the Fed authority,” St Germain said. “We’re going to set the parameters. If we wait for the Fed, we’ll be in the year 2000.”

Timetables Set

St Germain has introduced--with 150 co-sponsors--a bill that would require the Fed to develop within five years a system under which no deposited check could be held by a bank for more than three days before the funds are available to the depositor. Checks drawn on another local bank would have to be available on the following business day.

In the interim, the St Germain legislation would establish a longer timetable that banks would have to follow at the risk of subjecting themselves to civil suits for failure to comply.

As introduced, funds would have to be available on the second business day after deposit for any check of $100 or less, any check drawn on another in-state branch of the institution where it is being deposited and any check issued by a federal, state or local government agency.

The maximum delay would be four days on a check drawn on any bank deposit in the same region, five days on one drawn on any other in-state bank and nine days on any U.S. institution.

Similar legislation was introduced last year but not pushed aggressively, in part because Fed and banking industry officials pleaded for more time to get banks to voluntarily adopt shorter hold periods.

However, Martin acknowledged Thursday that “voluntary efforts do not appear to be providing a rapid solution to this problem.” In fact, he said, surveys conducted on behalf of the Fed showed an increase--to 15% in 1985 from 13% in 1983--in the number of “families reporting delayed available problems.”