And also if an account or a combination of accounts of a customer has been overdrawn on three separate distinct occasions, he also falls out of the State law.

Fourth, when an institution in good faith doubts the collectibility of funds, that also falls out.

Mr. Chairman, do we intend to include that in the legislation? Chairman ST GERMAIN. Well, I am not going to at this point say to my colleague that we intend to include anything, but I would say to him in another manner, as I told him earlier before he propounded this inquiry, I purposefully left some of these sections out so that they could be discussed.

As a matter of fact, the $2,500 figure that is in the New York regulation, incidentally-it was a regulation that was effectuated under delegation of authority from the State legislature-there is a different number in the State of California, where they are looking at a $5,000 figure.

For this reason I didn't put it in because I didn't want to label it as though this is the number I think that is sacrosanct, but rather I left it out so that we can, as the process evolves, have discussions with the institutions and their representatives.

Mr. BARNARD. So what you are saying is what we are considering is not a perfected bill?

Chairman ST GERMAIN. Oh, certainly not. Certainly not.
Mr. BARNARD. OK.

Chairman ST GERMAIN. No, no, no. It is a discussion piece that incorporated much of what New York did, to go a little further than that which was done by our colleagues Mr. Frank and Mr. Carper, and certainly I look forward to the ever-present contributions of my very, very helpful, erudite, knowledgeable colleague from the great State of Georgia.

Mr. BARNARD. Mr. Chairman, I appreciate that, and I also want you to come down and campaign for me.

Chairman ST GERMAIN. I may need some tickets to the Masters. [Laughter.]

Mr. BARNARD. Well, we will see that you get them. The fact is you can play if you want to. [Laughter.]

But I just want to say in closing that I commend the New York statute, and I can understand why you got that tremendous cooperation, and I hope that we can include some of those very, very desirable features to balance this law, you know, as far as I was concerned.

Thank you, Mr. Chairman.

Chairman ST GERMAIN. It sounds to me, Mr. Superintendent, that if you were to run for office and have the people on this committee voting for or against you, you receive an almost unanimous vote.

Mr. TESE. I would have to run for President. [Laughter.].
Chairman ST GERMAIN. I am not going to handle that one.

Mr. Wylie.

Mr. WYLIE. Thank you, Mr. Chairman. I don't believe I will either.

Mr. Douglas, the issue before us, I am finding out, is a little bit more complex than appears at first blush.

What do you generally believe is a reasonable time period for an institution to delay funds availability when cashing Government checks?

I just made the point here a little earlier that there is about a 24-hour time lag right now before provisional credit is even given. Mr. DOUGLAS. Mr. Wylie, I really have no detailed knowledge nor expertise in that area. I am not in the part of Treasury that regulates financial institutions, although we do have the direct deposit program and we do work with financial institutions across the country. I do not have enough accurate information to have developed expertise on the subject. My opinions would be no more valuable than those of a semi-informed layman.

Mr. WYLIE. Let me try another one then. I just learned yesterday that Treasury is allowed up to 6 years-and may I say that in each of these hearings you gain a little additional knowledge-but I learned yesterday that Treasury is allowed up to 6 years to notify an institution that a Government check it had cashed is fraudulent or otherwise noncollectible, and then the bank has to refund the amount of that check to Treasury.

Do you have some expertise in this?
Mr. DOUGLAS. Yes.

Mr. WYLIE. OK.

Mr. DOUGLAS. We do handle that.

Mr. WYLIE. What statute is that rule based on?

Mr. DOUGLAS. I do not have the exact citation with me Congressman Wylie. I will be happy to provide it for the record.

Mr. WYLIE. There is a statute or a law?

Mr. DOUGLAS. There is a statute.

[In response to the request of Congressman Wylie, the following information was received for the record from Mr. Douglas:]

(Citation from 31 U.S.C. 3712(a))

3712. Time Limitations for presenting certain claims of the Government

(a) Except as provided in this subsection, the United States Government must bring a civil action to enforce the liability of an endorser, transferor, depositary, or fiscal agent on a forged or unauthorized signature or endorsement on, or a change in, a check or warrant issued by the Secretary of the Treasury, the United States Postal Service, or a disbursing official or agent within 6 years after the check or warrant is presented to the drawee of the check or warrant for payment unless, within that period, written notice of the claim is given to the endorser, transferor, dispositary, or fiscal agent. The period of bringing a civil action is extended for 180 days if a claim is received under section 3702(c) of this title.

(b) Notwithstanding subsection (a) of this section, a civil action may be brought within 2 years after the claim is discovered when an endorser, transferor, depositary, or fiscal agent fraudulently hides his claim for an officer or employee of the Government entitled to bring the civil action.

(c) The Comptroller General shall credit the appropriate account of the Treasury for the amount of a check or warrant for which a civil action cannot be brought because notice was not given within the time required under subsection (a) of this section if the failure to give notice was not the result of negligence of the Secretary. (d) The Government waives all claims against a person arising from dual pay from the Government if the dual pay is not reported to the Comptroller General for collection within 6 years from the last date of a period of dual pay.

Mr. DOUGLAS. We also are concerned abut this problem you have identified. I have directed my staff to begin our internal legislative analysis and proposal development process addressing this issue.

You may be aware that all checks issued by the Federal Government have an unlimited payability period. That is, they are payable forever. Our legislative proposal is considering establishing a stale date and also a limitation on the amount of time for which a claim could be made against a financial institution for old, lost, stolen, or forged checks.

Mr. WYLIE. Well, I didn't know that Government checks were payable forever until just now, and that is reassuring, I think. [Laughter.]

Mr. DOUGLAS. If you had to keep the data base for it, you would not be, sir.

Mr. WYLIE. Pardon me?

Mr. DOUGLAS. I say if you had to keep the data base for all those checks, you would not be.

Chairman ST GERMAIN. How do you ever expect to get that changed by those of us who all live on Government checks and whose staffs all get paid by Government checks?

Mr. DOUGLAS. I think we will be-

Chairman ST GERMAIN. You are going to have one tremendous lobby. [Laughter.]

Mr. DOUGLAS. We are hoping that with such a distinguished audience, the logic of our position will be unassailable, and you will immediately grasp it and help us.

Chairman ST GERMAIN. Well, that is self-defeating.

Sorry, Mr. Wylie.

Mr. WYLIE. Self-serving but maybe not self-defeating. [Laughter.] If Treasury has this 6-year statute of limitations, what do you think is a reasonable period of time to identify and charge back a fraudulently negotiated Government check?

Mr. DOUGLAS. Congressman Wylie, we are still conducting internal reviews at Bureau and Department levels. At this time, we are analyzing implications of a 6-month payability period and a 1-year limitation on claims for payments.

Mr. WYLIE. I am sure this is an elementary question, but why not make it the same as the granting of provisional credit?

Mr. DOUGLAS. I beg your pardon. I didn't catch that.

Mr. WYLIE. Why not make it simultaneous with the granting of provisional credit if it is a social security check?

Mr. DOUGLAS. Well, are we talking about the same thing?

Mr. WYLIE. Maybe not. As I said, it might be an elementary question, but we are looking at a possible law now which suggests that the money be available at least within 24 hours or whenever the provisional credit period is, and if it is a Government check and the person whose name in which it is issued has deposited the check, then should this time period within which it should be declared fraudulent or noncollectible be simultaneous?

Mr. DOUGLAS. Another witness-I believe it was Senator D'Amato-noted that up to 3 months could elapse before it is known that a check has not been cashed or stolen and forged and a determination of the actual status of the check can be made. This is not unusual situation at all.

It does not seem likely, at least in my mind at this time, that the Federal Government could provide instantaneous, or very close to instantaneous, reclamation against a financial institution. In the

case of stolen and forged checks, we cannot act against a financial institution until a claim for nonpayment is filed. These claims can get into a wide variety of situations, such as a Secret Service investigation, before we are allowed to take further action.

Mr. WYLIE. Well, there is a little different dimension to the whole problem.

Thank you very much, Mr. Chairman.

Chairman ST GERMAIN. Mr. Douglas, I have had complaints from financial institutions in the past about Government checks, the fact that this intolerable amount of time can ensue prior to the Government coming back and saying, well, you cashed this check in 1978 and it is a forged check.

Do you have any statistics, any information whatsoever-and you better be ready to have it if you want to make those changes because I, for one, will insist upon it-that indicates to us what the average period of time within which a forged check comes to your attention is?

Mr. DOUGLAS. I couldn't give you any information more accurate than guesses at this time Mr. Chairman, but-

Chairman ST GERMAIN. We won't hold you to it exactly, just

yes.

Mr. DOUGLAS. Thank you. It sometimes takes months or even years before we are notified that a deceased payee claim will be made. In the case of stolen and forged checks, it usually takes from 4 to 6 weeks before we can determine that we have a forgery situation, but this just begins the process, because▬▬

Chairman ST GERMAIN. You learn of the forged check, ordinarily, because the recipient or the person who should have received that check or the benefits, the money from that check, communicates with the Congressman and says: "I didn't get my social security check," or perhaps calls to the Social Security Administration and says: "I didn't get my check."

Mr. DOUGLAS. Right.

Chairman ST GERMAIN. Do you mean it takes them 1 month?
Mr. DOUGLAS. No.

Chairman ST GERMAIN. I'm talking average now. Is 1 month an outside figure or-isn't that an unusual period of time? Most people that know they've got a check coming, and boy, if it's not there on the day it's due, they're going to complain immediately.

Mr. DOUGLAS. Yes; in the case of social security payments which are due on the third day of the month, the Social Security Administration, which is the initial contact point, usually learns about a problem within 24 to 48 hours.

Chairman ST GERMAIN. So what takes 6 months? Then what happens next? The Social Security Administration hears about it. Then what do they do?

Mr. DOUGLAS. They come to Treasury and say: "Has this check been presented for payment?"

Chairman ST GERMAIN. Initially. How long does it take you to determine whether that check was issued, on the average?

Mr. DOUGLAS. To be issued, probably a few days.

Chairman ST GERMAIN. To determine whether or not the check had been issued and mailed out; right.

Mr. DOUGLAS. Once we learn that the check has actually been mailed, we then have to determine if the check has been presented for payment. This is a time-consuming process because we have to track the check through clearance processes which require that checks go to the Federal Reserve bank where they are "truncated," a technical term for the way they're initially processes, are photocopied, placed on magnetic tape, and then sent to Federal Record Centers. We obtain information on a check through microfilm and magnetic tape media. If our investigation reveals that the check has not been cashed, we notify the agency that requested the search that the check is outstanding. The agency, in turn, has the responsibility to request a replacement check be issued.

If it has been presented

Chairman ST GERMAIN. How long does that take?

Mr. DOUGLAS. Probably within about 10 days.

Chairman ST GERMAIN. Ten days from the time of the issuance of the complaint?

Mr. DOUGLAS. Ten days from the time we learn that someone said: "I don't think I got my check."

Chairman ST GERMAIN. It takes 10 days to find out whether it is truncated or microfilmed, or something like that?

Mr. DOUGLAS. Oh, yes.

Chairman ST GERMAIN. Who is the culprit there that is losing so much time? Is it the Federal Reserve?

Mr. DOUGLAS. We're talking about 700 million checks each year, Mr. Chairman, and so we're talking about a massive operation. Chairman ST GERMAIN. Yes; just answer my question. I'm asking you where's the culprit.

Mr. DOUGLAS. I don't know that there is a culprit.

Chairman ST GERMAIN. You don't know who the culprit is?

Mr. DOUGLAS. There is no individual culprit. We use a system-

Chairman ST GERMAIN. Well, who is responsible for that timelag?

Mr. DOUGLAS. It is built into the process itself.

Chairman ST GERMAIN. Oh, it is the process. It's nobody.

Mr. DOUGLAS. Well, it is a people process Mr. Chairman, but-Chairman ST GERMAIN. All these checks have magnetic numbers and codes, et cetera.

Mr. DOUGLAS. That is true.

Chairman ST GERMAIN. We have spent millions and millions of dollars on all these computers that run these magnetic fiddle de daddles; right?

Mr. DOUGLAS. The system that handles this is 30 years old, and we are in the process of replacing it.

Chairman ST GERMAIN. Now, what are you going to recommend? We have a big Federal finance institution that gets a check, that cashes a Government check, a social security check, for example, and finds out a year or two later, that it was a forged check. Does it really take that long for the Treasury to find out that that check was forged?

Mr. DOUGLAS. In most cases, no, sir.

Chairman ST GERMAIN. So what are you going to recommend as a change for the time period within which you have to notify the