Blank Checks from YourCredit Card Issuer Carry Risks and Costs

Those blank "convenience checks" from yourcredit card company offer a quick way to write yourself a loan, pay bills ortransfer other loans to your credit card account. But be aware that the use ofa convenience check is a "cash advance" that comes with high costsand other potential pitfalls.

Take precautions to avoid serious fees and penaltiesif there's a glitch when you deposit a convenience check into your checkingaccount or send it to pay a bill.Before you write a check, make sure that it will not put you over your limitfor cash advances. Also find out what the current limit is in case your creditcompany reduced the amount you may borrow on your card through cash advancesand you forgot or did not notice.

"If the convenience check puts your card balanceover the new limit, your card issuer may not honor the check," said LukeW. Reynolds, Chief of the FDIC's Community Outreach Section. "The returnedcheck could trigger overdraft fees from your bank, returned-check fees fromothers and over-limit fees from your card issuer."

His recommendations: "Understand when your cardcompany might not honor a check. Consider calling your card company to verifyyour understanding of its policies," Reynolds said. "In addition, youmay want to call your credit card company again after you deposit the check into your bank and before you spend any of that money, tomake 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 severalpercent of the amount of each check. If the fee is five percent, you'd pay $50to write a check for $1,000. In addition, the interest rate on this loan toyourself can be much higher than the rate on your card purchases, perhaps twiceas high. Most consumers believe that they will pay off the debt before theintroductory rate expires, but many find they can't.

Also consider that you may not be allowed aninterest-free period to pay the loan without interest accruing. "Mostlenders will begin charging interest when the check posts to your account, evenif they otherwise give you at least a couple of weeks to repay your credit cardpurchases interest-free," said Irma Matias, an FDIC Community AffairsSpecialist.

Even if you are offered a low interest rateinitially, find out what interest rate you will pay when the introductoryperiod is over. And, think twice about repeatedly transferring balances fromone credit card to another, because you could end up paying costly fees thatmore than offset the attractive, promotional interest rate.

Remember that there may be fewer consumer protectionswhen making purchases with convenience checks. When you use your credit card for purchases, theFair Credit Billing Act gives you the ability, under certain circumstances, towithhold payment on defective goods until the problem has been corrected. Thatprotection doesn't exist with convenience checks, even though they are relatedto your credit card account. Also, with convenience checks, you may not receiveany rebates or points as you would using a credit card.

Look for and shred convenience checks you don't planto use. "Dishonestfriends, family members or workers around the house have found conveniencechecks very convenient for getting a loan without going through the hassle ofasking," said David M. Nelson, a fraud examiner in the FDIC's FinancialCrimes Section. "Also remember that thieves rummage through trash lookingfor valuable papers such as convenience checks and bank statements, so do yourbest to shred these documents before you toss them away."

Consider asking your card issuer to stop mailing youconvenience checks if you're sure you don't want them. "This saves paper, avoids the risk the checksmight be stolen from your mailbox or home, and helps discourage you fromturning to the checks as an easy fix," said Reynolds. "Conveniencechecks can be expensive and many consumers find that they should be usedsparingly, if at all."