done automatically. It takes a day or two. The trip back is manual and takes a long time.

The trip out to the bank, as I said earlier, is aided by a machinereadable code on the check which directs it to the bank on which the check is drawn. Unfortunately, the endorsements stamped on the back of the check are in no special order and must be read by the people who are responsible for manually directing that check back to its destination.

In many cases, in order to meet the midnight deadline mandated by the Uniform Commercial Code, banks are obligated to use the U.S. mails to deliver checks, to return checks through this manual process. If each institution in the chain uses the mails, this can also add a great deal of time to the return process.

Although the check clearing process is only occasionally this laborious local clearinghouses can clear a check in 1 day and checks between major cities, even on opposite coasts, rarely take more than a day or two-as long as the current cumbersome system requires as much as 2 weeks to clear and return a bad check, I do not believe that banks should have to face possible losses due to checkkiting or other fraudulent practices made easier by mandated schedules.

I believe our efforts in Congress should focus on facilitating the phasing out of this antiquated check clearing process and replacing it with one that makes better use of available technology.

Section 3 of the Expedited Funds Availability Act does just this, but I do not believe we need to wait 5 years to achieve this goal. The return process can be expedited so that checks are cleared or returned in only 2 or 3 days. There is now ongoing in the 11th Federal Reserve district an experimental direct return project, the Dallas project. This experimental program has been very successful in reducing the amount of time it takes to return checks by eliminating the intermediary banks in the return process, in that manual return process, and directly returning the checks from the bank on which a check is drawn to the bank of first deposit through the Federal Reserve System. A check's round trip in the 11th district has been reduced anywhere from 1 to 22 days back through this manual system, and I have been assured by participants in the project that national implementation would reduce the time even more.

Changes in the law would have to be implemented to make this program national, since five States and the District of Columbia have not adopted the section of the UCC that allows direct return of checks. In addition, other new laws that would reduce the return time, such as mandating machine-readable coding by the bank of first deposit, extending the midnight deadline so that banks need not resort to the U.S. mails, making clear that banks may pick up cash letter deposits from out-of-State banks and others should be passed.

In conclusion, sir, H.R. 5301 addresses the funds availability problem as it pertains to consumers and does so well. Although I have some reservations about the availability schedules in the bill, mainly based on the fact that in-town or in-State or out-of-State are not necessarily accurate measures of the time it can take a check to clear, I do believe that schedules should be included in the legis

lation so that financial institutions will have an incentive to reduce their holding times. I am not convinced that they will reduce the holds unless mandated to do so.

I would prefer, however, that the mandatory availability schedule be based on the actual time it takes for an individual check to clear. I believe that the check clearing and return system should be modernized so that the checks move through the system quickly and efficiently and in 2 or 3 days.

A national 3-day policy could then be put into effect that would serve both goals that I stated earlier. The consumer would have his or her money with only a minimum delay and the financial institutions will be protected from clever check-kiters. I think it is fair to do no less.

In addition, I do not believe that expedited check clearing is the end of this issue. Electronic funds transfers and truncated checking could make funds availability almost immediately. Consumers and bankers could benefit from an oversight group created to study and recommend methods of streamlining the clearing and returning system and to create incentives to put those methods in place.

Had a bank or Federal Reserve review commission existed before this time, the funds availability problem might have been handled much earlier in a much different manner.

Once again, Mr. Chairman, I congratulate you on your legislation, and I request your support of my efforts and that of my colleagues in further exploration of methods of reducing check clearing and return times.

Thank you very much.

[The prepared statement of Congressman Carper follows:]

BEFORE THE HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, REGULATION AND INSURANCE

I WOULD LIKE TO THANK YOU FOR INVITING ME TO ADDRESS THE
SUBCOMMITTEE TODAY ON THE IMPORTANT ISSUE OF DELAYED FUNDS
AVAILABILITY. DELAYED FUNDS AVAILABILITY IS A SERIOUS PROBLEM IN MANY
AREAS OF THE COUNTRY AND CAUSES SIGNIFICANT DIFFICULTIES FOR LARGE

NUMBERS OF CONSUMERS. I APPLAUD AND SUPPORT YOUR INTEREST IN
RESOLVING THIS PROBLEM.

ANYONE WHO HAS EVER DEPOSITED A FAIRLY BIG CHECK, WAITED
SEVERAL DAYS, THEN WRITTEN CHECKS TO PAY HIS OR HER BILLS -- ONLY TO
SUFFER THE EMBARRASSMENT OF HAVING THOSE CHECKS RETURNED WITH THE
STAMP "UNPAYABLE DUE TO UNCOLLECTED FUNDS" -- UNDERSTANDS THE
MOTIVATION BEHIND THESE HEARINGS. BECAUSE OF MY CONCERN ABOUT THE
SERIOUS PROBLEMS THAT CAN RESULT TO CONSUMERS DUE TO LENGTHY CHECK
HOLDS, THE FIRST PIECE OF LEGISLATION I INTRODUCED IN CONGRESS WAS HR
4187, THE DELAYED FUNDS AVAILABILITY ACT. MY ACTION WAS IN PART A
RESPONSE TO A RESOLUTION ADOPTED BY THE SENATE OF THE STATE OF
DELAWARE REQUESTING THAT ACTION BE TAKEN TO REDUCE THE AMOUNT OF
TIME CHECKS ARE HELD BEFORE CONSUMERS MAY RECEIVE THEIR FUNDS.

INVESTIGATION REVEALED THAT CHECK HOLDING IS A WIDESPREAD PRACTICE THAT NEEDS TO BE ADDRESSED NATIONALLY, IN A UNIFORM WAY, RATHER THAN IN A PIECEMEAL, STATE-BY-STATE BASIS AS IS NOW HAPPENING. CONSUMERS ARE BOUNCING MORTGAGE PAYMENTS, AND SMALL BUSINESSES ARE BOUNCING PAYCHECKS ALTHOUGH THEY HAD PREVIOUSLY DEPOSITED CHECKS THAT SHOULD MORE THAN COVER THESE SUBSEQUENT CHECKS. WHILE SOME FINANCIAL INSTITUTIONS MAKE FUNDS AVAILABLE TO THEIR CUSTOMERS IMMEDIATELY OR AS SOON AS THE BANK HAS USE OF THE FUNDS, TOO MANY OTHERS DELAY THE AVAILABILITY OF THE FUNDS REPRESENTED BY CHECKS FAR LONGER THAN THEY NEEDED TO, GIVEN THE AVAILABLE TECHNOLOGY. CONSEQUENTLY, A SUBSTANTIAL NUMBER OF CONSUMERS ARE BEING HURT.

PROVISIONS OF HR 4187, THE DELAYED FUNDS AVAILABILITY ACT

MY BILL, HR 4187, WHICH HAS BEEN COSPONSORED BY MOST MEMBERS OF THE BANKING COMMITTEE, REQUIRED ACTION FROM THOSE FINANCIAL INSTITUTIONS WHICH WERE ALL TOO OFTEN HOLDING CONSUMER'S FUNDS FAR LONGER THAN WAS NEEDED TO DETERMINE THAT THE CHECK WOULD NOT BOUNCE. IN THIS COUNTRY, ONLY ABOUT I PERCENT OF ALL CHECKS ARE RETURNED UNCOLLECTED, AND MOST CHECKS ARE CLEARED IN ONLY A FEW DAYS. ONLY RARELY ARE BANKS JUSTIFIED IN DELAYING THE AVAILABILITY OF FUNDS REPRESENTED BY CHECKS FOR MORE THAN A FEW DAYS.

HR 4187 PROPOSED REDUCING HOLDING TIMES BY MANDATING

DISCLOSURE BY FINANCIAL INSTITUTIONS OF THEIR CHECK HOLDING POLICIES. DISCLOSURE WOULD REDUCE HOLDING TIMES BY ALLOWING THE MARKET FORCES TO WORK. KNOWLEDGE OF THE INSTITUTIONS' HOLDING TIMES WOULD ENABLE CUSTOMERS TO PATRONIZE THE INSTITUTION BEST ABLE TO SERVE THEIR NEEDS, AND THIS COMPETITION WOULD ENCOURAGE FINANCIAL INSTITUTIONS TO REDUCE THEIR HOLDING PERIODS IN ORDER TO ATTRACT AND RETAIN CUSTOMERS.

THIS MEASURE ALSO MANDATED "DIRECT NOTICE." IT REQUIRED THAT THE BANK ON WHICH A CHECK IS DRAWN NOTIFY THE BANK IN WHICH A CHECK IS DEPOSITEDTHAT THE CHECK WOULD NOT BE PAID. IN THIS WAY, THE DEPOSITORY BANK COULD PAY OR REFUSE TO MAKE AVAILABLE THE FUNDS REPRESENTED BY THE CHECK WITH THE KNOWLEDGE THAT THE CHECK WAS GOOD OR BAD.

IN ORDER TO MAKE DIRECT NOTICE EASIER, HR 4187 ALSO MANDATED USE OF THE AMERICAN NATIONAL STANDARDS INSTITUTE (ANSI) STANDARD THAT REQUIRES ORDERED ENDORSEMENTS ON THE BACKS OF CHECKS SO THAT THE BANK OF FIRST DEPOSIT (BFD) COULD EASILY BE DETERMINED AND NOTIFIED.

I WAS MOST PLEASED, MR. CHAIRMAN, TO SEE THAT YOU HAVE INCLUDED MANY OF THESE IDEAS IN THE EXPEDITED FUNDS AVAILABILITY ACT.

THE NEW YORK APPROACH

THE APPROACH TAKEN IN HR 4187, I BELIEVE, WAS MORE FAIR THAN THAT WHICH HAS BEEN PASSED BY THE STATE OF NEW YORK (AND, MORE RECENTLY, BY CALIFORNIA) WHICH SETS AVAILABILITY SCHEDULES. NEW YORK REQUIRES BANKS TO HAND OUT FUNDS REPRESENTED BY CHECKS IN ONE DAY, THREE