WASHINGTON – Credit unions and the Consumers Union are finding themselves on opposite sides of the table on the "Check Clearing for the 21st Century Act." While CUNA and NAFCU, as well as NCUA have gone on record supporting the measure, the Consumers Union and other consumer organizations oppose the measure for not being in consumers' best interests. Testifying at Sept. 25th's hearing by the House Financial Services Subcommittee on Financial Institutions on H.R. 5414, Gail Hillebrand, Consumers Union's senior attorney with the organization's west coast regional office said, "This proposal takes a system that works relatively well and changes it in a way that imposes new risks and inconvenience on consumers." The Consumer Federation of America, U.S. Public Interest Research Group, and the National Consumer Law Center joined the Consumers Union's testimony. The consumer groups also opposed the Federal Reserve's Check Truncation Act, and they offered that "the Check Clearing Act is significantly worse for consumers than the Federal Reserve's CTA, because it offers a far weaker right of recredit when there is a dispute about payment of a check." In her testimony, Hillebrand offered eight reasons why the Consumers Union and other consumer organizations oppose "Check 21," as the act has come to be referred to: * it would make it impossible for those U.S. households that currently get their cancelled paper checks back each month to continue to do so; * it doesn't effectively protect consumers from new errors that electronic imaging of checks could cause; * the one new consumer right offered by H.R. 5414 doesn't apply to all consumers whose checks will be affected. In addition, the new right could be easily eliminated by a bank through a "simple change" in the account agreement; * the act gives consumers who write checks which are converted into electronic images weaker rights than consumers who initiate electronic funds transfers; * the act gives consumers no right to get back the original paper check; * information on the electronic image of a check could be used to invade consumer privacy; * the act doesn't protect consumers against high fees they could be charged when requesting the original or "substitute" check; * the act doesn't require banks to credit the depositor's account more quickly if electronic imaging of checks speeds up check clearing. Consumers Union estimates that 45.7 million U.S. households currently regularly get back their original paper checks. "The Act would force all of those household to change the way that they manage their finances," Hillebrand told the Subcommittee. Furthermore, she stated, check imaging technology is expensive, and while some large banks have invested in the technology, some smaller banks have not. "We have not seen any numbers suggesting that there will be a net cost savings in the banking system under the Act. More importantly, nothing in the Act guarantees that if there is a net cost savings, it will be passed on to consumers in lower fees or mandatory faster funds availability. Instead, the Act's push toward check imaging seems to be a way to reward large banks that have already made an independent business decision favoring check imaging," said Hillebrand. In conclusion, she said, "the Act should be rejected unless it is modified to provide a real and substantial benefit to consumers through a much broader right of recredit applicable whenever original checks are not returned, and other changes are made." Testifying on behalf of NCUA, General Counsel Bob Fenner discussed credit unions' history with check truncation, and he noted that when NCUA adopted a final rule in Dec. 1977 that provided CUs guidance for offering share draft accounts and required truncation, NCUA at the time "believed truncation was a significant development in the clearing process that contributed to reducing the overall cost of processing share drafts." He continued that, "NCUA has not heard of an instance where a credit union member has experienced unusual hardship due to truncation," Fenner told the Subcommittee. Addressing the issue of fees, Fenner also stated that, "While fees are always an issue for consumers – and should be – a more efficient payment system should reduce the monthly cost of maintaining a share draft or a checking account. Savings passed onto consumers in monthly maintenance fees should far outweigh the occasional fee required to obtain copies of truncated checks when necessary." Fenner reiterated NCUA's support for Check 21 since it would "improve the overall efficiency of the nation's payments system and guide the financial services sector to the next generation of cost-efficient check payments systems." NAFCU and CUNA too went on record as supporting H.R. 5414.. In a letter sent to committee Chairman Spencer Bachus (R-Ala.), NAFCU wrote that it "believes that both the financial services industry and American consumers and businesses will benefit greatly from the reduced handling costs and efficiencies gained through expedited collections" (CU Times, Oct. 2). NAFCU also recommended Section 7 of the bill be amended to reduce the timeframe an institution would have to submit a claim for expedited recredit from 120 days to 90 days." CUNA also supports the proposed measure. A written statement presented to the Subcommittee at the Sept. 25th hearing reviewed CUs' experience with check truncation and pointed out to Subcommittee members that credit unions "do not necessarily" truncate all members' processed checks. "Check truncation has allowed credit unions to provide members with lower fees and still provide members with outstanding services. The experience of credit unions is that consumers rarely request or need originals from truncated share drafts," the statement read. "CUNA is supportive of the Check Clearing for the 21st Century Act and CUNA encourages this subcommittee to consider its adoption.CUNA believes that the principles embodied in the Check Clearing for the 21st Century Act could promote efficiency with the payments system.," CUNA's written statement read. [email protected]