Fed May Halt Fees on Bank Check Cashing

The Federal Reserve Board, seeking to improve the check collection system, on Monday agreed to consider barring banks from charging a fee for honoring checks on the same day they are presented for payment.

The board, at an open meeting, voted unanimously to invite public comment for 120 days on the issue. The responses received would help to determine whether formal regulations should be proposed.

The drive to streamline check collections stems from the Expedited Funds Availability Act, passed last year, which seeks to make depositors’ funds available more promptly.

The Fed, which regulates bank holding companies, can present checks for payment up until 2 p.m. and be paid the same day. Some banks that do not clear their checks through the Fed can obtain similar terms by going through their local clearing house.

According to a Fed staff paper, however, some banks have trouble getting paid that day unless they maintain certain balances or pay fees.

By delaying check payments, banks can invest corporations’ surplus funds in the overnight money markets. For this reason, banks that earn money from delaying disbursement are likely to oppose a same-day payment rule, the Fed acknowledged.

Such a requirement also could make the timing and volume of checks received for payment more unpredictable, resulting in higher operating costs, the Fed staff paper said.

But overall, “same-day payment has the potential to accelerate the collection of some checks by encouraging more direct presentments by private sector collecting banks,” the paper added.

Fed governor Wayne Angell said same-day payment could have some significant ramifications. For one thing, an end to presentment fees could mean dramatically increased competition for the Fed’s own check-clearing services, he said.