Released August 10, 2009
MARION, Iowa -- 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.
The FDIC provides the following guidelines about blank checks.
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.
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. 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. 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," according to Luke W. Reynolds, Chief of the FDIC's Community Outreach Section. "Convenience checks can be expensive and many consumers find that they should be used sparingly, if at all."
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