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Convenience checks: Convenient for who?

If you use them, it will cost you.

If you lose them, it could cost you even more.

When it comes to convenience checks, there's plenty to be wary about.

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Convenience checks, which are typically mailed in sets of three, are special checks tied to a person's credit card account that can be used to make purchases or to transfer balances. They come with hefty fees -- as much as 5 percent of the check amount -- and steep interest rates -- often 20 percent or more.

The perfect crime
They also provide crooks with a convenient way to commit fraud. There's no signature verification with convenience checks as there is with credit cards. So if a thief should come upon a convenience check, they could cash it, go shopping, open a banking account --- whatever they want.

"They're a wide-open invitation to fraudulent access of your accounts," says Howard Strong, attorney and author of What Every Credit Card User Needs To Know.

"The poor cardholder is none the wiser until the statement arrives."

Only a handful of card issuers have stepped up security measures on convenience checks. For example, American Express cardholders must call a toll-free number to "activate" the checks. The vast majority of convenience checks can be picked up and used by anyone.

"People sometimes just toss them in the trash. That could be a very serious problem," says Tena Friery, research director of the Privacy Rights Clearinghouse. "That's another way for thieves to rack up accounts under someone else's name."

It can take months, sometimes years, for an identity theft victim to clean up the mess a crook has made of their credit. Be sure to handle convenience checks with care. If you don't plan to use them, shred them.

A very pricey purchase
It's also important to realize that while a convenience check may allow you to make a big purchase lickety-split, it's an awfully expensive credit choice.

"The only convenience that I see is they're convenient for the creditor to make money," says Howard Dvorkin, president of Consolidated Credit Counseling Services in Fort Lauderdale, Fla.

Interest on convenience checks begins immediately. As soon as a cardholder uses the check, the issuer starts collecting interest of 20 percent or more.

There's also a fee for using the checks, often 2 percent to 5 percent of the check amount.

Each credit card company handles convenience checks a little differently. One issuer may charge 3 percent of the check amount and a maximum fee of $25. Another issuer may charge as much as 4 percent of the check amount and a minimum fee of $3. Study the offer carefully.

Be prepared to do some digging. Interest rate information may not be listed on the check. You'll need to check your cardholder agreement or call the issuer.

It's important to find out what kind of rate is being charged on a convenience check because there's a good chance you'll be paying it for awhile.

Many issuers reserve the right to allocate a customer's payment toward balances with lower interest rates first. This tactic allows card issuers to maximize the interest they collect.

Say a customer makes $500 worth of purchases with a card at 13.9 percent and cashes a convenience check with a 22 percent interest rate. Any payment on the account will be directed to the purchase balance, ahead of the convenience check balance. So a convenience check balance and its hefty finance charges might linger for months and months.

Paying without protection
While a convenience check may be tied to a credit card account, it does not give you the same kinds of consumer protections as a credit card.

If you purchase unsatisfactory merchandise with a credit card, you can request a chargeback from your card issuer and the charge will be removed from your bill.

If a product purchased with a convenience check is defective or you don't like it, your bank won't be able to help.

"You're basically on your own," says Gerri Detweiler, author of Slash Your Debt. "The merchant has your money and you have to fight."

With diminished consumer protections on top of sky-high costs, it's easy to see why consumer experts dislike convenience checks.

"I can't think of an upside," Strong says. "I have to wonder if they shouldn't be banned."

If you do make a purchase with a convenience check, pay off the balance as soon as possible. Only use a convenience check when you absolutely have to.

"They truly are your absolute last resort for emergency money," says Catherine Williams, president of Consumer Credit Counseling Service of Greater Chicago. "I wouldn't ever consider using them for holiday spending."

Many issuers also use convenience checks in low-rate balance-transfer promotions. Signing and mailing the check from issuer A pays off the balance with issuer B. The balance then appears on a bill from issuer A.

You can save money by transferring a balance to a lower rate card, but be careful. This Bankrate.com worksheet will guide you through the balance-transfer process.

"Make sure you continue to make payments on the card until the transfer is complete," Detweiler says. "It can take up to six weeks."


-- Posted: Jan. 2, 2001




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