Although many classes of checks
are subject to delayed disbursement, the effects of delayed disbursement
are particularly significant in the case of teller’s checks and cashier’s
checks.
2 In addition to increased
transportation costs, the delayed disbursement of teller’s checks
and cashier’s checks imposes float costs on the depositary bank, which
must generally make the proceeds of these checks available for withdrawal
on the business day following deposit.
The Expedited Funds Availability Act and Regulation CC
require a depositary bank to provide customers with next-day availability,
under specified conditions, for certain checks deposited in transaction
accounts, including cashier’s checks and teller’s checks. Depending
on the location of the paying bank, a depositary bank may not receive
credit for the check by the time funds must be made available to the
customer for withdrawal. Thus, the practice of delayed disbursement
permits a bank issuing such checks to impose costs, in terms of lost interest,
on other banks and to benefit from interest or earnings credits earned
on outstanding checks until the checks are presented for payment.
The Board recognizes that many banks that issue teller’s
checks benefit from the specialization and economies of scale of certain
banks and other service providers that can perform the tracking, reconciliation,
and payment services associated with teller’s checks at a lower cost
than the issuing bank would incur by issuing and paying cashier’s
checks. In addressing the delayed-disbursement problem, the Board
believes that it is desirable to reduce the float created by the issuance
of these checks while minimizing the disruption of efficient teller’s-check
services.
As a general matter, the Board believes that a depositary
bank located in the same community as the bank that issues a teller’s
check should be able to receive next-day credit for the teller’s check.
The Board has determined, after review of Federal Reserve collection
patterns and deposit deadlines across the country, that depositary
banks in most areas generally can receive next-day credit for checks
that are encoded with a nonlocal-city routing number
3 and presented in a nonlocal
Federal Reserve city. For checks that are encoded with a nonlocal
RCPC or country routing number and presented in a nonlocal check-processing
region, credit is generally deferred by one or two days. The Board
recognizes, however, that depositary banks located on the west coast
generally may not be able to receive next-day availability for checks
presented in most nonlocal cities. In addition, in other isolated
areas of the country, next-day credit is generally not available for
any check payable by a nonlocal paying bank. The Board recognizes
that banks in these areas may benefit by having access to a centralized
teller’s-check service provider.
The Board believes that banks issuing teller’s checks
and teller’s-check service providers should take steps to ensure that
delays in the collection and return of teller’s checks are kept to
a minimum. First, the Board believes that any disbursement practice
designed to extend the time needed to collect a teller’s check is
inappropriate. Although the Board believes that centralized disbursement
is economically efficient in some cases, the location of the paying
bank should be chosen so as to minimize collection time.
Second, the Board has determined
that depositary banks can generally receive credit faster for checks
payable by a bank with a city routing number than for checks payable
by a bank with an RCPC or country routing number. The Board believes
that teller’s check service providers that serve issuing banks in
check-processing regions that are nonlocal to the paying bank should
help speed the collection and return of teller’s checks by use of
a city presentment point and a city routing number in the MICR line
of its teller’s checks.
Some teller’s-check service providers confine the scope
of their services to a state or other limited geographic area. Because
the state or area may be divided into more than one check-processing
region, such service providers may use a paying bank that is nonlocal
to many of their customer banks. In addition, the state or area may
contain no Federal Reserve city. The Board recognizes that it may
be impractical for such service providers to use a city presentment
point.
Third, the Board believes that those teller’s-check service
providers that serve banks nationwide should accept teller’s checks
at more than one presentment point, particularly those providers that
serve west coast banks. For example, a teller’s-check service provider
that uses an east coast paying bank could shorten collection and return
times for its California customers by also providing a west coast
presentment point for teller’s checks.
The Board recognizes that similar delayed-disbursement
problems arise in connection with cashier’s checks, issued by a bank
with multistate branches, that depositary banks must send to a central
location for payment. The Board believes that the same general guidelines
should apply to the disbursement of cashier’s checks as apply to teller’s
checks and will take further action regarding cashier’s checks should
abusive delayed-disbursement practices occur.
The Board will monitor the industry’s adherence to the
policy statement and delayed-disbursement practices in general and,
should abuses continue, will consider appropriate further action.