Dangerous checks in the mail

By Liz Pulliam Weston

Few financial products are actually evil, but convenience checks come pretty close.

Convenience checks are those slightly oversize checks, often issued in groups of three or four, that your credit-card issuer sends to encourage you to transfer a balance, make a purchase or tap your account for extra cash. Your card issuer might include them in your statement or send them separately.

But you pay, big time, for this "convenience." These checks:

• Typically come with hefty upfront fees for using them, often 3% to 4% of the check amount.

• Can trigger high interest rates, often 19% or more, which kick in immediately with no grace period.

• Have fewer consumer protections than credit cards.

• Leave you vulnerable to thieves.

Unlike credit cards, which you get in the mail only when you apply or when your card is renewed or replaced, convenience checks are sent out at the issuer's discretion. They can be plucked out of your mail and used by thieves.

"You don't know when they're coming. . . . These things just sort of appear haphazardly," said Tena Friery, the research director for the Privacy Rights Clearinghouse. "You don't have the opportunity to watch for them, so they could go missing and you'd never know (until) you saw your credit card statement."

Fewer safeguards under federal law

If a thief does get your checks, your protections under federal law aren't the same as if your credit card itself had been misused, said Carole Reynolds, a senior attorney for the Federal Trade Commission.

Regulation Z, which limits a consumer's liability for unauthorized use of a credit card to a maximum of $50, doesn't apply to convenience checks, at least as the regulation is now interpreted, Reynolds said. The Federal Reserve has been mulling changes to Regulation Z, but none has been implemented.

When it comes to disputes with merchants over quality issues, convenience checks also come up short. Credit card companies are required to investigate consumer disputes with merchants if a card is used, Reynolds said; the same rules don't apply when you pay with a convenience check.

Convenience checks do have the same protections as credit cards when it comes to billing disputes, however, as long as you alert the credit card company within 60 days after it issues your statement. If you're charged the wrong amount or discover bogus charges, you can force the credit card issuer to investigate your dispute.

Consumer may face fight with lender

Bankers insist that consumers shouldn't be worried, at least about theft or fraud. Although federal credit card protections don't always apply, state and federal laws that cover checks typically include convenience checks, said Nessa Feddis, a senior federal counsel for the American Bankers Association.

"You are protected from unauthorized transactions," Feddis said.

But there are holes in that protection, as I wrote in "Your paper check is a thief's best friend."

With fraudulent credit card transactions, the bogus charges are often wiped from your account as soon as you report them, and a new card is promptly issued.

With convenience-check transactions, it may not be that simple. A consumer may face a fight with his lender if he was "negligent" with the checks, Feddis said -- leaving them out where a housekeeper could swipe them, for example.

Good luck turning off the spigot

What if you understandably decide convenience checks are more trouble than they're worth? Here's another way they differ from credit cards: They're tough to stop.

Lenders are forbidden from sending plastic to you unsolicited, but there's no such prohibition on convenience checks. Plus there's no formal opt-out program, as there is for credit card offers. (The major credit bureaus allow consumers to call 1-888-5 OPT-OUT to remove themselves from most preapproved credit card solicitations.)

Continued: When to use the checks

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