CUNA Comment Letter

CUNA support posting electronic check debits later

Sent Via E-mail to reg.comments@federalreserve.gov

August 6, 2001

Ms. Jennifer Johnson, Secretary
Board of Governors of the Federal Reserve System
20th and C Streets, NW
Washington, D.C. 20551

Re: Docket No. R-1109

Dear Ms. Johnson:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the Federal Reserve's proposal to modify the procedures to allow debits associated with electronic check presentment to be posted later at 1:00 PM local time for the depository institution. As a national trade association, CUNA represents more than 90 percent of the nation’s 10,600 state and federal credit unions. This letter was developed under the auspices of CUNA’s Payment Systems Subcommittee, chaired by Terry West, President and CEO of Jax Navy Federal Credit Union, Jacksonville, Florida. CUNA supports the proposal to post electronic check presentment debits later.

The Federal Reserve has a Payments System Risk Policy that establishes maximum limits (net debit caps) and fees on daylight overdrafts in the accounts that depository institutions place with the Federal Reserve Banks. A daylight overdraft is the credit a depository institution uses when it overdraws its Federal Reserve Bank accounts. The Federal Reserve charges fees based on the amount and duration of the daylight overdraft that exceeds the financial institution's net debit cap. These overdrafts are measured by a set of posting rules established by the Federal Reserve. As part of a broader review, the Federal Reserve evaluated its posting rules.

According to the Federal Reserve, it discovered that the posting times for electronic check presentment transactions often create a disincentive for depository institutions to use Federal Reserve electronic check services. Under the current rules, electronic check presentment debits usually are posted at 11:00 AM because the Federal Reserve Banks deliver these debits in the morning, and they constitute presentments that must be posted on the next clock hour beginning at 11:00 AM and no later than 3:00 PM. As a result, the posting times for electronic check presentment debits are earlier than the posting times associated with paper check presentments. According to the Federal Reserve, some institutions have informed them that these earlier debit-posting times have caused some institutions to incur daylight overdrafts earlier in the day and for longer periods of time. This situation increases fees for those institutions because the Federal Reserve Banks charge institutions fees for the amount and duration of their daylight credit use that exceeds their net debit cap.

In this notice, the Federal Reserve requests comments from the financial community in general on posting. CUNA agrees with the Federal Reserve that this later posting time for electronic check presentment debits could encourage more banks to participate in electronic check presentment. This change in the posting time does not unduly benefit paying banks or depository banks because the vast majority of financial institutions function as both paying and depository banks. The proposal will require some institutions to adjust their systems for monitoring daylight overdraft accounts, so that they will recognize the later posting time for electronic check presentments, but CUNA agrees with the Federal Reserve that the cost of this change should be minimal. CUNA does not believe that this change will negatively impact the competitiveness of private-sector service providers.

CUNA supports this proposal, which should encourage more financial institutions to use electronic check presentment. If you have any further questions, please contact me at (202) 682-4200.

Sincerely,

Michelle Q. Profit
Assistant General Counsel