Ending the Floating Check Game: The Policy Arguments for Delayed Availability Reform

Retail bank customers have increasingly encountered delays in gaining access to their deposits. Those delays result in part from antiquated processing of returned checks, which leads banks to delay releasing funds to avoid making payments on dishonored or fraudulent checks. Banks also profit from this delay by drawing interest on funds during the period of nonavailability. This Article examines the current controversy on delayed availability.

The Article begins by describing the modem check collection system and the Federal Reserve Bank's involvement in check processing. After pointing out various inequities and inefficiencies in the current check collection system, the Article analyzes obstacles to correcting those problems. The Article closely examines three aspects of the check collection system: problems with notification of dishonor; the bank's right to treat customers differently; and the failure of attempts to resolve the inequities of the system with litigation. The Article concludes that article 4 of the Uniform Commercial Code, which regulates banking deposits and collections, offers no solution to existing problems.

The Article recommends that corrective legislative action be taken requiring disclosure of hold policies, direct notification that a check has been dishonored, mandatory availability of funds, expeditious return of dishonored items, and other sources of consumer protection.