Many years ago, after depositing a check in your bank, it would take several days for the funds to get from the place where the money was to your bank. During that time, those funds would not be available to you at your bank. However, once the funds arrived and were available to your financial institution then that financial institution made them available to you.
However, like pony express and the stage coach, those days are long gone. Today with supercomputers and technology, funds are available virtually immediately after the check is deposited or otherwise received. Yet, although there is real-time availability of your money, U.S. banks and financial institutions do not make them available to you typically for three business days (interestingly, most of the rest of the developed world moved to real-time payments). That is insane in the 21st Century where such transactions take place in microseconds, soon to be nanoseconds.
If you’re upper middle class or wealthy, none of this really matters to you because you already have funds in your bank account that act as a cushion. But if you are poor, or one of the tens of millions of Americans who are working but living paycheck-to-paycheck, this has a huge impact on you and causes real economic hardships. For example, not having access to their own money for days, particularly at the end of the month when many bills are typically due, needlessly drives people to extortionate and predatory payday lenders, which can spiral into a debt cycle that makes life much more difficult that it has to be.
This anachronistic payment system is needlessly costing hardworking Americans tens of billions of dollars every year. That is simply unacceptable and must change. The Fed is responsible for the payments system and has been charged with changing it, but it has merely been studying it for years and coming up with meritless excuses. The Fed’s failure to change here is indefensible. They need to make the change ASAP or someone needs to make them make the change.
No one has detailed the history, costs and the need for changing this dumb, outdated system better than Aaron Klein at Brookings. He filed a terrific comment letter with the Fed on this subject, which he summarized here. More recently, he elaborated on the key points here. Bottom line, the time for change is now and the Fed should do it before it is forced to do so by Congress.
