Parts of a proposed Federal Reserve regulation that would require credit unions to reduce the hold time on certain checks could increase the incidents of fraud and threaten safety and soundness, according to letters from CUNA, NAFCU and several credit unions.
The proposed rule, which increases next business day availability for certain funds and would reduce the time financial institutions could hold payment on checks they find suspicious, was mandated by last year's financial overhaul bill.
CUNA Regulatory Counsel Dennis Tsang wrote that decreasing the amount of time a financial institution can extend the hold time from five days to two days would increase fraud because smaller institutions need more time to handle problem checks.
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