Federal regulators may ease the way for fraudsters if they adjust the "hold" periods that credit unions and other financial institutions may place on checks, credit union trade groups have been warning.
The proposal from the Federal Reserve and the CFPB would shorten holds from five business days to four business days for nonproprietary ATM deposits.
The proposal would also decrease the reasonable additional extension hold from five to two business days, a move that "will likely increase check fraud risk and loss exposure to credit unions and other institutions," Alexander Monterrubio, CUNA's senior director of advocacy and counsel, said in a letter to the agencies.
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NAFCU has similar problems with sections of the rule.
"Not all nonproprietary ATMs will convert checks to electronic images or do so in a consistent manner, which could result in settlement or processing delays," Andrew Morris, NAFCU's senior counsel for research and policy, said. "Given these limitations, it would be unwise to adopt shorter holds when fraudsters continue to exploit processing and settlement delays to their advantage."
The agencies attached the hold proposal, first issued in 2011, to proposed rules implementing statutory requirements under Dodd-Frank.
The trade groups said the hold proposal should not be attached to an unrelated proposal, adding that there have been myriad technological developments since 2011.
"It is not enough for the agencies to merely 'recognize there may have been important changes in markets, technology or industry practice' since the comments process concluded eight years ago, rather the agencies should begin a robust process of updating and expanding upon the foundational basis for the provisions it proposed back in 2011," Monterrubio said in his letter to the agencies.
The agencies should develop a new proposal and go through the formal rulemaking process, the two trade group representatives said.
"If the board believes it is necessary to shorten the hold period, any reduction should be phased in gradually over multiple years to minimize fraud risk and loss exposure," Monterrubio said.
Morris said the agencies should adopt a more flexible framework that would provide credit unions with the time they need to determine if a check will be subject to a hold exception before funds are made available.
"The agencies should ensure that rules aimed at incentivizing electronic acceptance of items do not burden credit unions with a greater risk of fraud," Morris said.
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