Bill to Cut Check-Clearing Delays Approved in House

The House of Representatives overwhelmingly passed and sent to the Senate on Tuesday a bill that eventually would require banks to clear most local checks within a day and out-of-town checks within a week.

The bill, which was approved, 388 to 5, would override laws and regulations in 18 states, including California, that allow longer holds before checks are cleared.

“It’s time we gave the people access to their own money,” said House Banking Chairman Fernand J. St Germain (D-R.I.) in calling for support of the measure. “Even Social Security checks drawn on the United States Treasury” have been subjected to “a crazy quilt of arbitrary practices.”

Currently, the federal government does not limit how long banks may hold checks before clearing them, although some states have limits. Some banks have imposed holds of as long as three weeks, witnesses have told Congress. Last year, the House and Senate both passed bills to limit holds, but the legislation became tied up in debates on other banking issues.

Under the bill approved Tuesday, checks of less than $100, government checks and checks drawn on different branches of the same financial institution would have to be cleared the day after deposit.

For other checks, a schedule governing the length of holds would be phased in. This year, checks drawn on local banks would have to be cleared by the third business day after deposit; checks drawn on other banks would have to be cleared by the seventh business day.

Four years from now, local checks could be held only one business day and non-local checks four business days. Under the bill’s broad definition of a local bank, all of Southern California would be considered one local area.

California state regulations adopted in 1983 allow holds of up to nine days on out-of-state checks and as long as four days on most in-state checks, according to congressional testimony. In addition, the state regulations allow savings and loan institutions and credit unions to impose longer holds. The House bill would impose the same limits on all types of financial institutions.