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FE D E R A L R E S E R V E B A N K OF D A L L A S Station K, Dallas, T e x a s 7 5 2 2 2 C i r c u l a r No. 84-51 April 10, 1984 TO: All member banks and o t h e r s concerned in t he Eleventh Federal Reserve D i s t r i c t ATTENTION: Chief Executive O f f i c e r SUBJECT: Joint press release and policy statement concerning the delayed availability of funds SUMMARY: Federal r e g u l a t o r s , i n c l u d i n g the Federal Reserve Board, have i s sue d a j o i n t p o l i c y s t a t e m e n t concerning the delayed a v a i l a b i l i t y o f f unds . The p o l i c y s t a t e me n t c a l l s f o r t hos e f i n a n c i a l i n s t i t u t i o n s t h a t de l a y a v a i l a b i l i t y to review and d i s c l o s e t h e i r p o l i c i e s , and to r e f r a i n from imposing unnecessary de l a ys on a l l checks - - p a r t i c u l a r l y Social S e c u r i t y and o t h e r government checks. The agenc i e s b e l i e v e t h a t v o l u n t a r y i n d u s t r y a c t i o n , r a t h e r than mandatory r e q u i r e me n t s , r e p r e s e n t s a p o t e n t i a l s o l u t i o n t o many of t h e problems a s s o c i a t e d with delayed a v a i l a b i l i t y . However, the a genci es w i l l c o n s i d e r f u r t h e r a c t i o n i f they f i nd t h a t the e f f o r t t o s ol v e the problem by v o l u n t a r y means i s i n a d e q ua t e . ATTACHMENTS: J o i n t pr e s s r e l e a s e and p o l i c y s t a t e me n t as f o r p u b l i c a t i o n in the Federal R e g i s t e r MORE INFORMATION: Legal Department, Extension 6171 ADDITIONAL COPIES: Publi c A f f a i r s Department, Extension 6289 submitted This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) Banks and others are encouraged to use the follow ing incom ing W A T S numbers in c onta c ting this Bank: 1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For c alls placed locally, please use 651 plus the extension referred to above. Joint News Release Federal Financial Institutions Regulators For immediate r e l e a s e March 22, 1984 Federal r e g u l a t o r s of commercial banks, s a vi ngs banks and s av i n gs and loan a s s o c i a t i o n s today j o i n t l y c a l l e d upon f i n a n c i a l i n s t i t u t i o n s t o r e f r a i n from imposing unneces sary d e l a y s i n making funds a v a i l a b l e t o t h e i r d e p o s i t o r s . The Federal Home Loan Bank Board, t h e Federal Deposi t I ns ur a nce C o r p o r a t i o n , t h e Of f i c e of t h e Compt r ol l er of t h e Currency and t h e Federal Reserve Board made t h e r e q u e s t in a j o i n t pol i c y s t a t e m e n t . The p ol i c y s t a t e me n t was i s s u e d t o encourage banks and s avi ngs and l oans t o v o l u n t a r i l y a m e l i o r a t e t h e problem o f "del ayed a v a i l a b i l i t y o f funds" which a r i s e s a t i n s t i t u t i o n s t h a t delay t h e a b i l i t y o f custom e r s t o withdraw funds d e p o s i t e d by check. The a genci es s a i d t h e problem i s a r i s i n g a t an i n c r e a s i n g number of i n s t i t u t i o n s . The a g e n c i e s ' p o l i c y s t a t e m e n t made s eve r a l s p e c i f i c s u g g e s t i o n s f o r a d d r e s s i n g t h e problem, which has r e s u l t e d i n l e g i s l a t i o n in l e g i s l a t i o n i n t h e U.S. Congress. These s u g g e s t i o n s , as s e t two s t a t e s and proposed f o r t h in t h e a t t a c h e d p o l i c y s t a t e m e n t , s u g g e s t a review of p o l i c i e s with t h e o b j e c t i v e of reduci ng d e l a y s c o n s i s t e n t with pr ude nt b u s i n e s s p r a c t i c e s , d i s c l o s i n g funds a v a i l a b i l i t y p o l i c i e s t o customers and r e f r a i n i n g from imposing d e l a y s a c r o s s t h e boar d, s p e c i f i c a l l y del ays on Soci al S e c u r i t y and o t h e r government checks d e p o s i t e d in e s t a b l i s h e d acc o unt s . The agenc i e s s a i d t hey hope t h e problem can be handled by v ol unt a r y a c t i o n o f f i n a n c i a l i n s t i t u t i o n s along t h e l i n e s t he y s u g g e s t . But they s a i d they w i l l be moni t or i n g t h e e f f e c t i v e n e s s o f vo l u n t a r y a c t i o n and conduct i ng consumer s u r v e y s . The agenc i e s w i l l c o n s i d e r f u r t h e r a c t i o n i f t hey f i n d t h a t t h e e f f o r t t o s o l v e t h e problem by v o l u n t a r y means i s i n a d e q u a t e . - Attachment 0- COMPTROLLER OF THE CURRENCY FEDERAL DEPOSIT INSURANCE CORPORATION FEDERAL HOME LOAN BANK BOARD FEDERAL RESERVE SYSTEM Delayed A v a i l a b i l i t y of Funds; Issuance of a Po l i c y Statement AGENCIES: Compt r ol l er of t h e Federal Home Loan Bank Board, ACTION: SUMMARY: Currency, Federal Deposi t and Board of Governors I ns ur a nce C o r p o r a t i o n , of t h e Federal Reserve System. I s suance of a p o l i c y s t a t e m e n t . The a ge nc i e s a r e i s s u i n g t h i s p o l i c y s t a t e me n t t o encourage and a s s i s t i n d u s t r y e f f o r t s in v o l u n t a r i l y a d d r e s s i n g t h e problems caused by some f i n a n c i a l i n s t i t u t i o n s when they del ay a d e p o s i t o r ' s a b i l i t y t o withdraw funds d e p o s i t e d by check - - o f t e n c a l l e d "delayed a v a i l a b i l i t y of funds . " The p o l i c y s t a t e me n t c a l l s f o r t h o s e f i n a n c i a l i n s t i t u t i o n s t h a t de l a y a v a i l a b i l i t y t o review and d i s c l o s e t h e i r p o l i c i e s , and t o r e f r a i n from imposing unnecessary d e l a ys on a l l c hec ks , p a r t i c u l a r l y on Social S e c u r i t y and o t h e r government checks. In reviewing t h e i r a v a i l a b i l i t y p o l i c i e s , i n s t i t u t i o n s a r e asked t o c o n s i d e r t a k i n g i n t o account f a c t o r s t h a t i n d i c a t e whether a given s i t u a t i o n p r e s e n t s a r i s k of l o s s and t o provide a means f o r d e p o s i t o r s t o re q ue s t t h a t an e x c e p t i o n be made t o t h e s t a n d a r d hold p o l i c y . EFFECTIVE DATE: March 22, 1984. FOR FURTHER INFORMATION CONTACT: William G r a n t , O f f i c e of t h e Compt rol l er of t h e Currency, (202) 447-1938; Paul S a c h t l e b e n , Federal Deposit Insurance C o r p o r a t i o n , (202) 389-4761; Richard Tucker, Federal Home Loan Bank Board, (202) 377-6211; o r Gerald H u r s t , Board of Governors of t h e Federal Reserve System, (202) 452-3667. - SUPPLEMENTARY INFORMATION: 2 (1) G e n e r a l . - Delayed a v a i l a b i l i t y - - t h e p r a c t i c e by some f i n a n c i a l i n s t i t u t i o n s of d e l a yi ng a c u s t o me r ' s a b i l i t y t o withdraw funds d e p o s i t e d by check f o r s e v e r a l days a f t e r t h e d a t e of d e p o s i t - - has been an i s s u e of concern f o r s eve r a l y e a r s . I n t e r e s t in l i m i t i n g or r e s t r i c t i n g t he delayed a v a i l a b i l i t y p r a c t i c e has i n c r e a s e d r e c e n t l y both a t t h e s t a t e and f e d e r a l l e v e l . Two s t a t e s , New York and C a l i f o r n i a , have e nac t e d laws a d d r e s s i n g t h e i s s u e and s eve r a l o t h e r s t a t e s a r e c o n s i d e r i n g l e g i s l a t i o n . In a d d i t i o n , t h e r e a r e b i l l s pending in both houses of Congress. The agen c i e s b e l i e v e t h a t t h e p r a c t i c e of del ayi ng a v a i l a b i l i t y r e s u l t s i n problems f o r d e p o s i t o r s , e s p e c i a l l y when t h e pol i c y i s i n f l e x i b l e or i s not d i s c l o s e d t o d e p o s i t o r s in an e f f e c t i v e manner. Institutions m a i n t a i n t h a t t h e p r a c t i c e of d e l a yi ng a d e p o s i t o r ' s a b i l i t y t o withdraw funds beyond t h e time i t t a k e s t h e i n s t i t u t i o n t o r e c e i v e p r o v i s i o n a l c r e d i t f o r t h e check i s j u s t i f i e d t o some e x t e n t because of t h e time i t t a k e s f o r a check t o be r e t u r n e d t o t h e i n s t i t u t i o n of f i r s t d e p o s i t i f i t i s not paid by t h e paying i n s t i t u t i o n . They s t a t e t h a t t he only way an i n s t i t u t i o n l e a r n s t h a t a d e p o s i t e d check i s being r e t u r n e d unpaid i s t o r e c e i v e the check back; t h u s , t h e r e i s a r i s k of l o s s . However, only about one p e r c e n t of a l l checks a r e r e t u r n e d unpaid and only a very small p e r c e n t a g e of t h e s e checks r e s u l t in a ct ual l o s s e s t o f i n a n c i a l institutions. While i t may be t r u e t h a t t h e frequency of l o s s e s i s small because of delayed a v a i l a b i l i t y p o l i c i e s and t h a t t h e p o t e n t i a l f o r l o s s e s i s much l a r g e r , t h e agenci es n e v e r t h e l e s s b e l i e v e t h a t t h e p r a c t i c e of imposing del ays on a l 1 de p o s i t e d checks wi t hout regard t o whether a p a r t i c u l a r - 3 - s i t u a t i o n p r e s e n t s a p o t e n t i a l r i s k ( f o r example, t h e d e p o s i t of an unus ual l y l a r g e personal check i n t o a new a ccount ) does not appear t o be j u s t i f i e d by t h e r i s k of l o s s . More s p e c i f i c a l l y , f o r example, t h e r e i s normally no j u s t i f i c a t i o n f o r d e l a y i n g a v a i l a b i l i t y on a Social S e c u r i t y or o t h e r government check d e p o s i t e d i n t o an e s t a b l i s h e d account beyond t h e d a t e when an i n s t i t u t i o n r e c e i v e s c r e d i t f o r t h e check. The real r i s k of l o s s in such cas es r e s u l t s from f r a u d , which t y p i c a l l y would not be d i s c o v e r e d u n t i l long a f t e r t h e check has c l e a r e d . The agen c i e s b e l i e v e t h a t v o l u n t a r y i n d u s t r y a c t i o n , r a t h e r than mandatory r e q u i r e m e n t s , r e p r e s e n t s a p o t e n t i a l s o l u t i o n t o many of t h e problems caused by delayed a v a i l a b i l i t y , without t h e c o s t s and burdens of a l e g i s l a t i v e or r e g u l a t o r y approach. The agenci es a r e , t h e r e f o r e , i s s u i n g a p o l i c y s t a t e me n t t h a t o u t l i n e s t h e i r concerns and recommending a c t i o n s t o be taken by t h e i n d u s t r y in t h e hope t h a t i t wi l l encourage (2) Di s cu s s i on of p o l i c y and a s s i s t v o l u n t a r y i n d u s t r y a c t i o n . statement. The p o l i c y s t a t e me n t c a l l s on f i n a n c i a l i n s t i t u t i o n s t h a t delay a v a i l a b i l i t y t o t a k e s e v e r a l a c t i o n s . I n s t i t u t i o n s a r e asked t o review t h e i r p o l i c i e s , c o n s i d e r whether t h e delay p e r i o d s can be r e duc ed, and d i s c l o s e t h e i r p o l i c i e s t o customers in an e f f e c t i v e manner. I n s t i t u t i o n s are a l s o asked t o r e f r a i n from imposing unneces sary del ays on a l l checks, p a r t i c u l a r l y del ays on government checks d e p o s i t e d i n t o e s t a b l i s h e d accounts beyond t h e time r e q u i r e d f o r t h e i n s t i t u t i o n s t o r e c e i v e c r e d i t f o r t h e checks. In reviewing t h e i r p o l i c i e s , i n s t i t u t i o n s a r e asked t o c o n s i d e r v a r i o u s f a c t o r s t h a t might i n d i c a t e whether a r i s k of l o s s e x i s t s in a given s i t u a t i o n t h a t j u s t i f i e s a del ay i n a v a i l a b i l i t y and t o pr ovi de d e p o s i t o r s with a means f o r r e q u e s t i n g t h a t an e x c e p t i o n be made from t h e s t a n d a r d hold p o l i c i e s . - 4 - The a c t i o n s recommended a r e based on t h e a g e n c i e s ' b e l i e f t n a t , alt hough i t i s a p p r o p r i a t e t o del ay a v a i l a b i l i t y in some s p e c i f i c s i t u a t i o n s , i t i s not ne ce s sa r y f o r f i n a n c i a l i n s t i t u t i o n s t o delay a v a i l a b i l i t y on a l l d e p o s i t e d checks. By p o i n t i n g out s p e c i f i c a c t i o n s t h a t i n s t i t u t i o n s can t a k e , t h e a genci es hope t h a t t h e p o l i c y s t a t e me n t wi l l be a b a s i s f o r i nd u s t r y action. As t h e s t a t e me n t i n d i c a t e s , t h e a genci es plan t o monitor developments i n t h e a r e a t o det ermi ne whether f u r t h e r s t e p s a r e needed. ★ ★ ★ ★ ★ JOINT POLICY STATEMENT ON DELAYED AVAILABILITY OF FUNDS The Comptroll er of t h e Currency, Federal Deposit I ns ur a nce Corpora t i o n , Federal Home Loan Bank Board, and Federal Reserve Board a r e i s s u i n g t h i s p o l i c y s t at eme n t r e g a r d i n g t h e p r a c t i c e by f i n a n c i a l i n s t i t u t i o n s of del a yi ng a d e p o s i t o r ' s a b i l i t y t o withdraw funds d e p o s i t e d by check - - o f t e n c a l l e d "delayed a v a i l a b i l i t y of f u n d s . " The agenci es are concerned about t h e problems t h i s p r a c t i c e causes f o r d e p o s i t o r s and b e l i e v e t h a t vol u n t a r y a c t i o n on t h e p a r t of a l l f i n a n c i a l i n s t i t u t i o n s t o reduce t h e s e problems would be t h e most e f f i c i e n t , l e a s t c o s t l y , and l e a s t burdensome s o l u t i o n . An i n c r e a s i n g number of f i n a n c i a l i n s t i t u t i o n s delay a d e p o s i t o r ' s a b i l i t y t o withdraw funds in or de r t o reduce t h e i r r i s k of l o s s i f a de p o s i t e d check i s r e t u r n e d unpai d. However, f i n a n c i a l i n s t i t u t i o n s need not impose such d e l a ys on every d e p o s i t e d check in o r d e r t o reduce t h e r i s k . some delayed a v a i l a b i l i t y p o l i c i e s may be i n e q u i t a b l e . In f a c t , The a genci es b e l i e v e t h a t t h e r e a r e a c t i o n s t h a t f i n a n c i a l i n s t i t u t i o n s can t a k e now t o e l i m i n a t e some of t h e problems. - 5 - The a genci es b e l i e v e t h a t f i n a n c i a l i n s t i t u t i o n s t h a t del ay a v a i l a b i l i t y s houl d: (1) Review t h e i r p o l i c i e s and c o n s i d e r reducing t h e de l a y p e r i o d s t o t h e e x t e n t p o s s i b l e , c o n s i s t e n t with prudent b u s i n e s s p r a c t i c e s . (2) D i s c l o s e t h e i r p o l i c i e s t o d e p o s i t o r s in an e f f e c t i v e manner a t t h e time an account i s opened and, when p r a c t i c a l , a t t h e time a check i s d e p o s i t e d t h a t w i l l be s u b j e c t t o a delay in a v a i l ability. I n s t i t u t i o n s might a l s o a l e r t d e p o s i t o r s t o ot he r ways of t r a n s f e r r i n g funds t h a t do not invol ve c h e c k s , such as through wire t r a n s f e r s or d i r e c t d e p o s i t through an automated c l e a r i n g house. (3) Re f r a i n from imposing unnecessary del ays on a l l c h e c k s , p a r t i c u l a r l y delays on Social S e c u r i t y and o t h e r government checks d e p o s i t e d i n t o e s t a b l i s h e d account s beyond t h e time r e q u i r e d t o r e c e i v e c r e d i t f o r t h e checks. (A d e l a y beyond t h i s time i s g e n e r a l l y i n a p p r o p r i a t e s i n c e t h e real r i s k i s t h a t of f r a u d , which o r d i n a r i l y wi l l not be d i s c o v e r e d u n t i l long a f t e r t h e check has c l e a r e d . ) In reviewing t h e i r p o l i c i e s , i n s t i t u t i o n s should t a k e i n t o account f a c t o r s t h a t i n d i c a t e whether a given s i t u a t i o n p r e s e n t s a r i s k of l o s s t h a t j u s t i f i e s a de l a y in a v a i l a b i l i t y . These f a c t o r s may i n c l u d e , f o r example, t he l e n g t h of time t h e account has been m a i n t a i n e d , p a s t e xpe r i e nc e with t h e d e p o s i t o r , t h e i d e n t i t y of t h e d rawer , t h e type of check, and t h e l o c a t i o n of t h e payor d e p o s i t o r y i n s t i t u t i o n . In a d d i t i o n , i n s t i t u t i o n s should c on s i d e r p r o v i d i n g , as p a r t of t h e i r p o l i c y , a means for d e p o s i t o r s t o r e q u e s t t h a t an e x c e p t i o n be made from t h e s t a n d a r d delay p r a c t i c e and inform d e p o s i t o r s of this possibility. The a genci es hope t h a t t h e problems caused by delayed a v a i l a b i l i t y p o l i c i e s can be a ddress ed by v o l u n t a r y i n d u s t r y a c t i o n , and urge t r a d e groups and i n d i v i d u a l i n s t i t u t i o n s t o a c t . The agenci es w i l l be mon i t or i ng t h e e f f e c t i v e n e s s of t h e s e v o l u n t a r y e f f o r t s t o determine t h e e x t e n t t o which d i s c l o s u r e i s being made and t h e n a t u r e of s p e c i f i c delayed a v a i l a b i l i t y p o l i c i e s . Consumer - 6 - surveys w i l l a l s o be conducted t o d e t e r mi ne t h e l e ve l of consumer awareness of de l a yed a v a i l a b i l i t y p o l i c i e s and t h e e x t e n t of consumer problems. I f i t appears t h a t v o l u n t a r y a c t i o n i s i na d e qua t e t o addr ess t h e delayed a v a i l a b i l i t y i s s u e , t he a g e n c i e s w i l l c o n s i d e r f u r t h e r a c t i o n t o deal with t h e p r a c t i c e and t he problems i t c a u s e s . Dated: March 22, 1984 By o r d e r of the Of f i c e of t he C o mp t r o l l e r of t he Currency. John F. Downey Chief National Bank Examinei By o r d e r of t h e Federal Deposit I ns ur a nce C o r p o r a t i o n . ^boy i o y1lee 1l . R&oinson Rooi ns Executive S e c r e t a r y By or de r of t he Federal Home Loan Bank Board. T. J . F i n n S e c r e t a r y t o t he Board By o r d e r of t h e Board of Governors of t h e Federal Reserve System. William W. Wiles S e c r e t a r y of t h e Board
@FedFRASER