Your checks don't clear as quickly as you think

Regulation aims to speed deposits, but lengthy lags remain

Some bank consumers, assuming checks are being processed faster in the electronic age, are surprised when some of them hit speed bumps after being deposited.

It took 12 days before Bank of America cleared a $7,000 check Judi F. Babcock had written to her son, even though she says the money was removed from her account at Fidelity Investments two days after she wrote it. Her son narrowly avoided bouncing a series of checks for college expenses.

''This makes no sense to me," said Babcock, a Bedford resident. ''I don't understand how Bank of America justifies this now that checks are clearing faster than ever."

Robert Reich, the former US Labor secretary, moved from Cambridge to California recently and it took two weeks for the check he used to open a new Bank of America account to clear, longer than it took his furniture to make the trek. In a Marketplace commentary on National Public Radio, Reich grumbled that his money had disappeared from his account in Massachusetts and hadn't shown up yet in his new California account.

''So where is it?" Reich asked. ''Hovering aimlessly over Kansas City? Gasping as it crosses the Rockies?"

Most deposited checks clear within a day or two, but 19-year-old Federal Reserve Board Regulation CC gives banks the discretion to put much longer holds on certain types of higher-risk checks, including checks greater than $5,000, checks deposited into accounts of new customers, and checks that a bank suspects may not be paid.

Diane Wagner, a spokeswoman for Bank of America, said the bank makes the funds from higher-risk checks available no later than 11 business days after deposit.

''It's for fraud prevention and preventing identity theft," Wagner said. ''We want to make sure the check is good for the customer."

TD Banknorth has a similar 11-day policy, but other banks operating in Massachusetts hold high-risk checks for less time. Citizens Bank says it makes the funds available from high-risk checks no later than nine business days after deposit, while Eastern Bank and Sovereign Bank have a six-day limit.

''We can do what we need to do in six days," said an Eastern spokesman, Joe Bartolotta. ''Our goal is to be as consumer friendly as possible."

In bank-speak, business days are defined as Mondays through Fridays, not including federal holidays. So an 11 business-day hold could end up lasting as long as 17 regular days.

Babcock, the Bedford mother who waited 12 regular days, said the long delays can create major headaches for consumers. ''When people make big deposits, it's usually because big things are happening in their lives," she said. ''They need access to their money."

She and Reich said they assume that banks profit by holding checks longer, but a spokesman for the Massachusetts Bankers Association said most banks credit interest to customers even on funds that are on hold. One bank official who asked not to be identified because of competitive concerns said banks may profit another way, by being able to invest all the money on hold rather than following the usual practice of retaining some of the funds in reserve for withdrawals.

A spokesman for the Federal Reserve Bank said Regulation CC was approved in 1987 to standardize check hold times and protect banking institutions and their customers against fraud.

Banking industry officials say check holds have become even more important in recent years as counterfeit checks have become more sophisticated and laws passed in the wake of the Sept. 11, 2001, terrorist attacks have required more scrutiny of money movements.

All banks spell out their funds availability policies in the disclosure statements they hand out to new customers, but few consumers read them. In general, cash, electronic deposits, US Postal Service money orders, government checks, cashier's checks, and checks drawn on the depositor's same bank are available for withdrawal one business day after being deposited.

Other types of checks may take longer. The funds from a check drawn on a bank in the same check-processing region should be available on the second business day following the day of deposit. Checks drawn on a bank in another check-processing region should be available on the fifth business day after the deposit. Deposits made at automated teller machines may take longer to clear.

Overall, checks aren't moving as fast as many consumers think. In late 2004, after passage of the Check Clearing for the 21st Century Act, consumers were warned not to write a check if they didn't have enough money in their account because the two-to-three-day float that many consumers had come to rely on was going to disappear.

The new law made it easier for banks to convert checks into electronic images that can be processed in a fraction of the time and cost it takes to ship checks between financial institutions on planes, trucks, and trains.

But Greg McBride, a senior analyst at Bankrate.com, said ''Check 21" hasn't had much of an effect yet, with less than 1 percent of all checks being converted to electronic images. ''It's an expressway that very few banks are using at this point," he said.

Over time, McBride said, banks will adopt the new technology and check processing times will shorten. Eventually, McBride said, federal regulators will have to revisit Regulation CC and its hold times for checks. Until then, consumers should not automatically assume that funds deposited on Monday will be available by Wednesday.

Bruce Mohl can be reached at mohl@globe.com.