Check Collection: Competitive Fairness Is an Elusive Goal
GGD-89-61
Published: May 12, 1989. Publicly Released: May 12, 1989.
Skip to Highlights
Highlights
In response to a legislative requirement, GAO assessed private banks' ability to compete with Federal Reserve banks in providing check collection services, focusing on: (1) the Federal Reserve System's exemption from the imposition of presentment fees; (2) the impact of the imposition of presentment fees on check collection system efficiency; and (3) whether the Federal Reserve System required check clearinghouses to provide services to the Federal Reserve banks and whether those banks should pay check clearinghouses for any such services.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Board of Governors | The Board of Governors should clarify existing policies and procedures covering the Federal Reserve commitment to competitive fairness. Specifically, the Board of Governors should define its commitment to competitive fairness by explicitly adopting the principle that collecting banks should have the same abilities as Reserve banks to collect on checks unless fulfillment of payments system safety, soundness, or efficiency objectives indicate Reserve banks should take on unique abilities. |
In March 1990, the Board issued formal procedures for assessing the competitive impact of changes in Federal Reserve Bank services.
|
| Board of Governors | The Board of Governors should clarify existing policies and procedures covering the Federal Reserve commitment to competitive fairness. Specifically, the Board of Governors should require Federal Reserve officials, when deliberating on regulatory, price, and service changes, to identify any practical and legal differences between Reserve and collecting banks that may hinder collecting banks' ability to effectively offer competing check collection services. For differences that are found, Federal Reserve officials should provide the Board with proposals for eliminating the differences or an explanation of why continuation of those differences are necessary to promote the safety, soundness, or efficiency of the payments system. Full disclosure of the basis for decisions should be made to the public. |
The policy adopted in March 1990 addressed the recommendation. The policy was used to address a complaint regarding Federal Reserve transportation of checks.
|
| Board of Governors | The Board of Governors should clarify existing policies and procedures covering the Federal Reserve commitment to competitive fairness. Specifically, the Board of Governors should require Federal Reserve officials to closely oversee prices on products that cannot be offered by collecting banks on an equal basis to ensure that markups are not unreasonable and to make public disclosure of what those markups are. |
The Federal Reserve reduced the price on the major product it offered that could not be offered competitively by private banks. However, it has not adopted a general policy, for proprietary reasons, of disclosing its markups. At this point, it would be reasonable to wait until another specific problem arises before pursuing the matter further.
|
| Board of Governors | The Board of Governors should clarify existing policies and procedures covering the Federal Reserve commitment to competitive fairness. Specifically, the Board of Governors should require Federal Reserve officials to develop a forum for hearing disagreements raised by private-sector participants over changes made by the Federal Reserve that may result in the private sector being precluded from effectively offering competing check collection services. |
The policy adopted in March 1990 addressed the recommendation. As noted above, the policy has been used to address complaints on the check transportation policy.
|
| Board of Governors | The Board of Governors should, consistent with the recommended policy and procedural changes, develop a revised, comprehensive same-day-payment proposal that both balances the interest of paying collecting banks and eliminates differences in presentment abilities between Reserve and collecting banks that are not necessary for safety, soundness, or efficiency of the payments system. |
Regulation CC was modified in October 1992, to provide same day settlement to presenting banks.
|
Full Report
Public Inquiries
Topics
Bank managementBanking lawClearinghouses (banking)Collection proceduresFederal reserve banksFeesBankingFederal reserve systemPrivate sectorHome loans