Have you ever been at a closing and the attorney says that we we are done signing but we do not have the funds to disburse?
Then the client says, “I sent the wire an hour ago, is there a problem?” Because a closing attorney cannot disburse the closing until the funds have been received in the attorney’s account, the wire delay could cause the buyer a delay in getting their keys. Under the CCRA contract, the closing does not occur until disbursement. So why does the wire often take so long to process in an age of instant emails and text? The answer can be found in our antiquated banking system; a system that was implemented in the 1970s.
Here is how the wire system works. Once the client has authorized the bank to send the wire, the wire transfer instructions are forwarded from the bank office to the bank’s wire transfer department by pdf or facsimile. The banks do not use email due to security issues. The first possible delay may occur if the bank manager delays sending the wire instructions to the wire room. Several banks have “off-site” wire departments so once the wire instructions are sent to the wire room the local banker may no longer have control over the process. The wire department typically handles wire transfers on a “first in, first out” basis. Therefore, your second possible delay may come in processing your request if other requests are already in place. The wire department will review the wire instructions for errors in routing numbers, receiving bank information and account numbers. If any information is incorrect, the instructions are sent back to the bank officer to correct which could be another source of delay if the bank officer is out of the office or working with another person. If the instructions are correct, the wire department sends the instructions to the local Federal Reserve via the Federal Reserve Wire Network (Fedwire). Fedwire is the transfer system operated by the Federal Reserve Banks. The Reserve then reviews the names of the recipients and amount of transfer and clears the wire. The Reserve acts like a customs officer looking for any suspicious activity. How long it takes to clear the Fed can also cause a delay. The Federal Reserve will then release the wire and assign a Federal reference number if everything looks proper. The wire is then received by the attorney’s bank but the wire must be posted to the proper account. If there is a mistake in the account number or beneficiary name there could also be a delay in posting. If a high volume of wires are incoming to the bank there may be a delay as the bank usually posts the wire in the order received.
Another possible reason for delay is that most bank’s wiring departments are comprised of just a few people. The volume of wires at any given time can fluctuate, causing delays. Also wires can only be sent from 9:30 to 4:00 pm, so the entire volume of wires is done over a short period of time.
The United Kingdom recently moved from a similar system to a new banking initiative known as the “Faster Payments Service” which made money transfers instantaneous. According the website Planet Money, the banking community in the United States voted on implementing the new system but the vote failed to pass due to a concern in fraud. So, we are stuck with our current system for the time being.
Photo by Tax Credits