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A Thing Speaking of Scams

Speaking of Scams

Next time you receive a check in the mail for some astronomical amount, don't assume it's from Ed McMahon and toss it in the garbage. It could be an instant loan check.

These checks are a new marketing gimmick for financial institutions (credit card companies and mortgage lenders) and they are being met with opposition due to high interest rates and risk of fraud.

For example, one consumer who had no affiliation with the originating bank, received a $7,500 check which, if signed, would loan her the $7,500 at a rate of 13.99% over 60 months.

The check need only be signed to be cashed. The lenders say they only solicit people with good credit histories and defend the loans as a convenience to consumers. But, others argue there aren't enough protections to ensure a consumer isn't penalized if someone else cashes the check.

Since some checks come from credit card companies, consumers may believe the same rules apply to these checks as to the credit card. But, in reality the checks are much different. For example they:


1. don't have the same rates as the credit card;

2. don't offer the same protections as the credit card;

3. usually don't have a grace period-interest is accrued as soon as the check is cashed;

4. may charge an additional transaction fee;

5. may not offer rebates or miles as credit card purchases do.

Now Rep. Maurice Hinchey has proposed a bill banning the loans. Hinchey's bill is also sponsored by Rep. Henry B. Gonzalez of Texas, the Banking Committee's senior Democrat. The politicians see a parallel with a 1970 law that banned the practice of sending unsolicited credit cards in the mail. On the other hand, The American Bankers Association views Hinchey's bill as anti-consumer since it would hinder consumers' choices.

The checks are still too new to determine how widespread they are. But, Signet has singed up nearly $1 billion in 18 months. As far as protections, Gaylon Layfield, president and CEO of Signet says, "We think the consumer is well protected," because consumers aren't liable if a check falls into the wrong hands. Denise Foy, Vice President of Beneficial Corporation, a major consumer-finance company who issues the checks, says they have safeguards to minimize inconvenience "in the rare event" a check is cashed by someone else.

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