CUNA Comment Letter

RE: Advance Notice Of Proposed Rulemaking On Reduced Hold Periods For Nonlocal Checks Under Regulation CC

March 15, 1999

Ms. Jennifer Johnson
Board of Governors of the
Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551

RE: Docket No. R-1031, Advance Notice Of Proposed Rulemaking On Reduced Hold Periods For Nonlocal Checks Under Regulation CC

Dear Ms. Johnson:

The Credit Union National Association, CUNA, appreciates the opportunity to comment on the Federal Reserve Board's Advance Notice of Proposed Rulemaking regarding a possible amendment to Regulation CC, Expedited Funds Availability. The possible change, which would reduce the hold period for most nonlocal checks from five to four business days, was published in the Federal Register December 15, 1998. CUNA represents more than 90% of the nation's state and federal credit unions.

CUNA's Payments Subcommittee, chaired by Stan Hollen, President of The Golden 1 Credit Union in California, is updating a study of credit unions' concerns and needs regarding the payments system. The study will examine credit unions' current involvement in the payments system as well as future issues. It is anticipated that the study will produce useful information regarding a range of payments topics, including checkhold polices. We will provide the results of the study to the Federal Reserve Board and other policy makers when it is available.

It is our understanding, based on past surveys, that a number of credit unions often make check and share draft proceeds available earlier than is required under Regulation CC. Thus, consistent with the pro-consumer practices that are the hallmark of the credit union system, CUNA strongly supports expeditious availability to deposits for consumers.

However, we have several concerns about the Board's contemplated changes to Regulation CC to shorten the regulatory time frame under which the proceeds of nonlocal items must be made available to consumers.

The Board is considering reducing the number of days a financial institution may hold a nonlocal check from five to four days before the funds must be made available to the depositor. Pending the outcome of our study, we are not supporting this change at this time.

Credit unions responding to us on this issue have raised the concern that returned nonlocal items may not be returned before five business days, particularly items involving fraud. We believe this is consistent with the Federal Reserve Board's 1996 study, "Report to the Congress on Funds Available Schedules and Check Fraud at Depository Institutions." According to that study, even though 84% of nonlocal returned items were returned by the fifth business day at all institutions, only 54% of the returned items made it back within that time frame for credit unions. The study, on page 23, footnote 40, also points out, "Commercial banks are more likely than credit unions or savings institutions to participate in check clearinghouses and to present checks directly to the paying bank, which enables them to collect and return checks faster." We urge the Board to consider the impact on all types of financial institutions and refrain from changing the hold period based on an average of financial institution experiences.

Even if CUNA did support reducing the hold period at this time, we do not agree with the Board's proposal that would allow a depositary institution to retain a five-day hold period for certain categories of nonlocal checks only if it certifies that a substantial proportion of items in those categories are not received within four days. We believe this system is far too cumbersome to be utilized by many institutions, and it would result in consumer disclosures that are overly complex.

Thank you for the opportunity to comment on the Advance Notice of Proposed Rulemaking regarding possible changes to Regulation CC. If you or other Board staff have questions about our comments, please do not hesitate to give me call at 202-218-7769.


Mary Mitchell Dunn Associate General Counsel