You may think your credit card company is doing you a favor by sending you blank checks, letting you fill them out and paying the recipients after you’ve filled out the checks. That seems pretty convenient, but it’s convenience for which you may pay dearly.
Convenience checks, as they are known, are treated as cash advances, which means you probably will pay a higher interest fee than you would on a normal credit card charge. The difference often is about 20 percent and could go up to double.
Before the Credit CARD Act took effect, issuers could apply your payment to the lowest interest balances first in order to maximize their profits. Now they have to apply any amount you pay over the monthly minimum to the balance with the highest rate on it first.
Still, writers of convenience checks should know that the interest clock starts ticking as soon as the check is written; there’s no grace period, as with credit card charges. Know also that credit card checks may have some upfront fees, often from 3 to 4 percent of the amount you borrow against your credit limit.
Maine’s Bureau of Financial Institutions and the FDIC teamed up a couple of years back to urge consumers to look hard at convenience checks. Bureau Superintendent Lloyd LaFountain III had several pieces of advice then, and they’ve stood the test of time.
Know your credit card limit first. There’s a cap on the amount of cash advances you can get. Your limit may have changed at some point, so don’t write checks that could put you over your limit and cost you more in fees.
Know the risks if a check isn’t honored. If you go over your limit, your card issuer might not honor the check. You might end up paying returned-check fees from whoever you were trying to pay, as well as over-limit fees to the card issuer.
Don’t jump at “introductory low rates.” Find out what the fees will be once the introductory period ends and the fees you will pay for each transaction. For example, a 5 percent fee on a $1,000 check equals a $50 fee.
Know when the interest starts to accrue. Many lenders start charging interest when the check is posted to your account, while you may have a couple of weeks interest-free to pay for credit card purchases.
Don’t use funds until you’re certain they’re available. You might deposit a convenience check into your own checking or savings account, but don’t use those funds until you’ve confirmed with the credit card company that the check has been honored.
Remember to shred convenience checks you don’t use. This will ensure that they don’t fall into the hands of thieves, or even people you know.
Forbes magazine cautions that thieves who steal your checks might write big checks to themselves. The magazine says also that the checks don’t carry the full federal protections against fraud consumers have when using credit cards. William Lund, superintendent of Maine’s Bureau of Consumer Credit Protection, says account holders are not responsible for stolen or forged checks as long as the bank is notified promptly.
Efforts to regulate convenience check offers from national banks in other states generally have been unsuccessful. So, it’s up to consumers to protect ourselves by being informed. When considering such offers, it’s wise to shop around and compare rates and terms before jumping in.
Or, if you’re sure you don’t want them, you can ask your credit card company to stop sending blank checks.
Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s membership-funded, nonprofit consumer organization. Individual and business memberships are available at modest rates. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write: Consumer Forum, P.O. Box 486, Brewer 04412, or go to necontact.wordpress.com, or email email@example.com.