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(10) the term "United States" means the several

States and the District of Columbia.

EFFECTIVE DATE

SEC. 13. (a) The provisions of sections 1, 2, 3, 8, 9, 12,

5 and 13 shall take effect on the date of the enactment of this

6 Act.

7 (b) The provisions of sections 4, 5, 6, 7, 10, and 11 shall

8 take effect 90 days after the date of the enactment of this 9 Act.

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Sec. 3: Requires the Federal Reserve to develop a system in no longer than five years from the date of enactment that would cause all checks to be cleared so that funds would be available for withdrawal the next business day after the day of deposit at local institutions, and for nonlocal institutions, not more than three business days would intervene between the day of deposit and the day of availability of the funds for withdrawal. The Federal Reserve should consider, among other things, establishing a uniform endorsement standard, and a system for expedited notice of nonpayment of a check to the receiving depository institution. The Federal Reserve would report within six months, and annually thereafter, on progress toward the goal.

Sec. 4:

Establishes specific time limits for funds availability for types of deposits made by check. These limits would be in effect while the system described in Section 3 is being developed. The limits are:

(1) One business day between day of deposit and day of availability for checks of $100 or less; checks drawn on branches of the receiving depository institution; cashier's checks and certified checks and U.S. Treasury, State and local government checks endorsed only by the person to whom the check is issued;

(2) Not more than three business days between day of deposit and day of availability for checks drawn on local depository institutions (i.e., institutions with an office in the same city, town or village or, if designated by the Federal Reserve, in the same local region or metropolitan area, as the receiving depository institution);

(3) Not more than four business days between day of deposit and day-of-availability for checks drawn on non-local depository institutions in the same State as the receiving depository institution; and

(4) Not more than eight business days between day of deposit and day of availability for checks drawn on depository institutions outside the State of the receiving depository institution.

Deposits made on Saturdays, Sundays, holidays or after business hours are deemed made on the next business day. The Federal Reserve is given regulatory authority to shorten the time periods specified above.

Sec. 5: Provides an exception to the maximum limits in Section 4. Checks drawn on depository institutions outside the United States would be subject to the receiving depository institution's availability policy.

Sec. 6:

Preserves the authority of States to enact laws, and of individual depository institutions to prescribe policies, to make funds available more quickly than the time periods prescribed in this Act or in Federal Reserve regulations.

Sec. 7: Requires depository institutions to disclose their funds availability policies in writing to new customers; on deposit slips or by specific notice when deposits are made; in mailings to established customers; and by posting of notices in locations where deposits are taken.

Sec. 8: Authorizes the Federal Reserve to publish optional model disclosure forms and clauses.

Sec. 9: carry out the Act.

Permits the Federal Reserve to promulgate regulations to

Sec. 10: Establishes enforcement arrangements under exisiting law, to be carried out by the federal regulators of depository institutions. Sec. 11: Provides civil liability penalties for individual and class actions for violations of the Act.

Sec. 12:

Sec. 13:

Prescribes definitions applicable to the Act.

Establishes effective dates for the Act. The Federal Reserve is to begin working toward its five year goals starting on the date of enactment. The interim maximum time limits prescribed in the Act, the disclosure requirements, and the enforcement provisions take effect 90 days after enactment.

Chairman ST GERMAIN. The Chair now recognizes Mr. Wylie.
Mr. WYLIE. Thank you very much, Mr. Chairman.

I want to join you in welcoming our distinguished witnesses from the financial community and commend you for holding this hearing and add that the issue of delayed funds availability deservedly needs the attention of this subcommittee.

While at first glance, the issue may appear to be largely technical in nature, it is more than that, I agree. These hearings should put financial institutions on notice that the concerns of their customers regarding unconscionable and unnecessary delays in making funds available are shared by their Representatives in Congress. Most financial institutions disclose their practices, credit accounts at least when they receive provisional credit and pay interest on funds beginning on the day of deposit.

As a matter of fact, Mr. Chairman, I had occasion to check in my own community, and I have found there apparently is no such problem in the Columbus area, I'm pleased to say. And frankly, I was surprised that such a problem even exists, but unfortunately, there are a few rotten apples in every barrel, and apparently there are a few in this barrel.

I applaud the efforts of the banking regulators to encourage institutions to refrain from imposing unnecessary delays in making funds available to their depositors and to voluntarily disclose their availability policies.

Only time will tell whether this policy statement has a positive effect on the delayed availability problem. In the meantime, I plan to keep an open mind to all options in dealing with the abuses in the system.

I want to compliment our first three witnesses, our distinguished colleagues from New York, Delaware, and Massachusetts for their personal efforts in seeking solutions to the delayed availability issue, and I look forward to your testimony, gentleman.

Thank you very much, Mr. Chairman.

Chairman ST GERMAIN. The Chair now recognizes the gentlemen, a member of the subcommittee, Mr. Drier.

Mr. DREIER. Thank you very much, Mr. Chairman.

As the subcommittee today begins deliberations on the complex subject of delayed funds availability, I'd like to briefly share the results of a California State Banking Department survey. The survey was mailed on November 3, 1983, to all 405 banks in California. While the results are far from conclusive, they do shed light on the growing degree of voluntary industry efforts to minimize unnecessary check-clearing_delays; 61 percent of the banks contacted responded. Of these, 74 percent reported that it is not their normal policy to place a hold on checks, while 83 percent reported that they informed depositors of their hold policies, as a matter of

course.

It can be argued that this high rate of disclosure was a response to California's delayed availability statute, which was signed into law on September 21, 1983, but I believe the major institutional changes necessary to alter disclosure and availablity practices could not have been enacted overnight and were in effect long before the California Legislature acted to force bank compliance with respect to check-clearing practices.

In short, voluntary industry standards can work, given sufficient time. In California, industry efforts seem to have been in motion well before a legislative remedy was enacted. This already high disclosure rate clearly provides the consumer with banking alternatives, which will lead institutions to even greater voluntary compli

ance.

As far as the legislation now under consideration, I believe it would be unwise for Congress to hastily enact Federal check clearing standards before giving careful consideration to the effect of both the California and New York legislation, and equally important, the impact of efforts by the industry and by regulators to improve bank performance on both delayed availability and disclo

sure.

Thank you very much, Mr. Chairman.

Chairman ST GERMAIN. I'd say to my colleague that, having been here a little while, this is not a new issue. They've had years, and years, and years. We've been suggesting to them for years that they do something. I mean, patience begins to wear thin, not on the part of the Members, but on the part of our constituents who are up in arms about this. But that's why we're having the hearings to determine if, indeed, there is voluntary compliance other than in California and New York.

Isn't it strange that that type of compliance just comes about in the States where there has been legislation enacted? We're going to

hear from the gentleman from New York, the superintendent of banking there, to the effect that some institutions who have been told by the regulation, they need not comply, are not complying. So we do have a dilemma here.

Mr. DREIER. Mr. Chairman, as I was pointing out, I believe that the compliance had actually increased in California before the legislation had even been signed into law.

Chairman ST GERMAIN. Hoping that there would be no legisla

tion.

Mr. DREIER. And the regulators are taking action now, as you pointed out.

Chairman ST GERMAIN. We will determine through these hearings how much voluntary compliance is taking place.

Mr. DREIER. Yes, sir, Mr. Chairman.

Chairman ST GERMAIN. Now at this point in time, it is indeed a pleasure to recognize this distinguished panel. With all due deference to the Senator, if the Senator doesn't mind, I have two members of my committee whose votes I need on occasion that have subcommittee hearings to chair and legislation to handle at 10 o'clock on one part and another committee to chair on the other part-would you mind very much, if I heard from them first?

Senator D'AMATO. Mr. Chairman, as they say: "When in Rome, do as the Romans do."

I am delighted to be in this arena under your stewardship, and I commend you for holding these hearings, and certainly recognizing the exigencies of the day, I would be delighted to hear the enlightened testimony of my House colleagues.

Chairman ST GERMAIN. Thank you.

Now, I'd like to hear from my neighbor, my new neighbor from Massachusetts, who has a neighboring district to mine. It's always a scintillating experience to hear him expostulate, and I am sure he will give some good testimony on behalf of the very important and meaningful legislation that he has introduced.

So at this time, we'll recognize our colleague, a distinguished member of this committee, Mr. Frank of Massachusetts.

STATEMENT OF HON. BARNEY FRANK, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS Mr. FRANK. Thank you, Mr. Chairman, I appreciate being taken first, because I do have to preside at another hearing, but you know you have my votes on the merits anyway, but I do appreciate this consideration.

I am delighted that you, Mr. Chairman, have called this meeting and that you have introduced a very thoughtful piece of legislation. It seems to me very important that we act right now.

The first thing I want to say, and I want to congratulate our friend and colleague from Chicago, Mr. Annunzio, on his victory of yesterday.

One of the things that's now clear, whether or not Congress ought to intervene in the financial system with specific enactments to protect consumers apparently doesn't appear to be controversial any more, because as I understand it, the American Bankers Association supported the legislation offered by the gentleman from

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