Blank Checks from Your Credit Card Issuer Carry Risks and Costs
Those blank "convenience checks" from your credit card company offer a quick way to write yourself a loan, pay bills or transfer other loans to your credit card account. But be aware that the use of a convenience check is a "cash advance" that comes with high costs and other potential pitfalls.
Take precautions to avoid serious fees and penalties if there's a glitch when you deposit a convenience check into your checking account or send it to pay a bill. Before you write a check, make sure that it will not put you over your limit for cash advances. Also find out what the current limit is in case your credit company reduced the amount you may borrow on your card through cash advances and you forgot or did not notice.
"If the convenience check puts your card balance over the new limit, your card issuer may not honor the check," said Luke W. Reynolds, Chief of the FDIC's Community Outreach Section. "The returned check could trigger overdraft fees from your bank, returned-check fees from others and over-limit fees from your card issuer."
His recommendations: "Understand when your card company might not honor a check. Consider calling your card company to verify your understanding of its policies," Reynolds said. "In addition, you may want to call your credit card company again after you deposit the check into your bank and before you spend any of that money, to make sure the card issuer has honored the check."
Know the fees and the interest rate you'll pay. Expect to incur a transaction fee of several percent of the amount of each check. If the fee is five percent, you'd pay $50 to write a check for $1,000. In addition, the interest rate on this loan to yourself can be much higher than the rate on your card purchases, perhaps twice as high. Most consumers believe that they will pay off the debt before the introductory rate expires, but many find they can't.
Also consider that you may not be allowed an interest-free period to pay the loan without interest accruing. "Most lenders will begin charging interest when the check posts to your account, even if they otherwise give you at least a couple of weeks to repay your credit card purchases interest-free," said Irma Matias, an FDIC Community Affairs Specialist.
Even if you are offered a low interest rate initially, find out what interest rate you will pay when the introductory period is over. And, think twice about repeatedly transferring balances from one credit card to another, because you could end up paying costly fees that more than offset the attractive, promotional interest rate.
Remember that there may be fewer consumer protections when making purchases with convenience checks. When you use your credit card for purchases, the Fair Credit Billing Act gives you the ability, under certain circumstances, to withhold payment on defective goods until the problem has been corrected. That protection doesn't exist with convenience checks, even though they are related to your credit card account. Also, with convenience checks, you may not receive any rebates or points as you would using a credit card.
Look for and shred convenience checks you don't plan to use. "Dishonest friends, family members or workers around the house have found convenience checks very convenient for getting a loan without going through the hassle of asking," said David M. Nelson, a fraud examiner in the FDIC's Financial Crimes Section. "Also remember that thieves rummage through trash looking for valuable papers such as convenience checks and bank statements, so do your best to shred these documents before you toss them away."
Consider asking your card issuer to stop mailing you convenience checks if you're sure you don't want them. "This saves paper, avoids the risk the checks might be stolen from your mailbox or home, and helps discourage you from turning to the checks as an easy fix," said Reynolds. "Convenience checks can be expensive and many consumers find that they should be used sparingly, if at all."