Bureau of Financial Institutions Joins FDIC in Advising Consumers about Risks and Costs Associated with Blank Checks from Credit Card Issuers

AUGUSTA, MAINE – Bureau of Financial Institutions Superintendent Lloyd P. LaFountain, III is joining the Federal Deposit Insurance Corporation (FDIC) in urging consumers to educate themselves regarding the costs and risks associated with using blank “convenience” checks that are mailed by many credit card companies to their cardholders.
“Blank convenience checks offer a seemingly quick and easy way to pay bills or transfer loans to your credit card,” Superintendent LaFountain commented. “But consumers need to be aware that these checks are a “cash advance” that comes with high costs and other potential drawbacks.”
Along with the FDIC, Maine’s Bureau of Financial Institutions strongly encourages cardholders to take precautions to avoid substantial fees and penalties:
* Know Your Cash Advance and Overall Spending Limits. Before using a convenience check, make sure it won’t put you over your limit for cash advances. With some card issuers having recently reduced spending limits, this may be a good time to confirm those amounts with your credit card company.
* Understand the Risks when a Check isn’t Honored. If a convenience check puts your card balance over the limit, your card issuer may not honor the check. The returned check could trigger returned-check fees from the company or financial institution you attempted to pay, as well as over-limit fees from your card issuer.
* Never Use Funds Until Certain of Their Availability. If you deposit a convenience check directly into your own checking or savings account, never use those funds until confirming with the credit card company that the check has been honored.
* Know the Fees You’ll Pay. Many of these checks have a transaction fee of several percent of the amount of each check. If you write a check for $1,000, and the fee is five percent, you’ll pay $50.
* Understand the Interest Rate on a Convenience Check, which can be much higher than the rate on your card purchases—sometimes twice as high. Most consumers believe they will pay off the debt before the introductory rate expires, but many do not.
* Find Out When the “Interest Clock” Starts Ticking. Many lenders will begin charging interest when the check posts to your account, even if they provide a couple of weeks to repay your credit card purchases interest-free.
* Don’t be Fooled by “Introductory Low Rates”. Find out what the interest rate will be after the introductory period ends.
* Expect Fewer Consumer Protections. There may be fewer consumer protections when making purchases with convenience checks. When making a purchase using a credit card, the Fair Credit Billing Act gives you the opportunity, under certain circumstances, to withhold payment on defective goods until the problem has been resolved. That protection doesn’t exist with convenience checks. Additionally, you may not receive rebates, points or other incentives associated with your credit card when using a convenience check.
* Remember to Shred Unused Convenience Checks. Don’t provide an opportunity for thieves or people you know to access convenience checks. They should always be destroyed if not used.
“Ask your credit card company to stop mailing convenience checks if you’re sure you don’t want them, LaFountain concluded. “This will make sure you avoid all possible pitfalls from their use and guarantee that they don’t fall into the hands of someone who might use them without your knowledge.”
The Bureau of Financial Institutions is part of the Department of Professional and Financial Regulation, which encourages sound ethical business practices through impartial regulation of insurers, financial institutions, creditors, investment providers, and numerous professions and occupations for the purpose of protecting the citizens of Maine. Consumers can reach the Bureau through the Department’s website (www.maine.gov/pfr); by calling 1-800-965-5235 or by writing to Bureau of Financial Institutions, 36 State House Station, Augusta, Maine 04333.
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