Bad credit non payday loan

Are bad checks a good thing?

Debunking the myths about checking overdrafts

Of course, bad checks can never be a good thing! Decent, responsible people would never intentionally or knowingly write a "bad check." Honest, reputable businesses would never "encourage" anyone to write a "bad check."

But, it's not that simple is it? Is a "bad" check the same as a "hot" check? Is a "bounced" check the same as a "bad" check? Are some "bad" checks just mistakes, and other bad checks "really bad" checks? What about "returned" checks? What about "insufficient funds" or "non-sufficient funds" or "NSF" checks?

No one should be surprised at the confusion and misunderstanding in the marketplace about bad checks, bounced checks, and "creative" consumer overdraft programs - given the often contradictory advice, commentary, opinions and point(s) of view on and about "bad check" programs. Anyone seeking clarification and direction on these "programs" will have a difficult time and will find that the facts seem very elusive.

MYTH #1: All consumer checking account "Overdraft Protection" products/services are the same.

FACT: Almost all banks and credit unions have traditionally offered three discrete and separate forms of overdraft protection products/services for their customers: 1) Overdraft "protection" that is tied to the customer's own funds in accounts other than the primary checking account. 2) Overdraft "protection" that is tied to an established "line of credit" that the customer has requested. (A "loan" is created as the customer is "borrowing" funds from an established line of credit.) 3) Overdraft "protection" that is provided to the customer in the sole discretion and judgment of the financial institution.

The financial institution has no agreement with or obligation to the customer to allow (pay) overdrafts. However, in its sole discretion and judgment, the financial institution may pay certain overdrafts for certain customers. It is this form of overdraft "protection" that has recently become the subject of concern and debate - even though its use and "legality" have been well-established for many, many years.

MYTH #2: If the individuals and organizations promoting "discretionary overdraft services" weren't encouraging consumers to write NSF items and overdraw their accounts, consumers would rarely engage in such irresponsible practices.

FACT: In the year 2000 alone, and prior to the recent, exponential growth of discretionary overdraft service programs and program providers, consumers wrote about 400 million1 individual "NSF items" or "Overdrafts." And, for writing about 400 million individual overdrafts, consumers paid over $8.2 billion in related "NSF Fees" to financial institutions and payees of their NSF items. Clearly, consumers do not need to be "encouraged" to write overdrafts.

MYTH #3: The providers or "vendors" of discretionary overdraft service programs are "greedy" and are "only in it for the money."

FACT: There is no question that these programs make money. But, what "drives" the acceptance and success of these programs is first, foremost and always consumer demand. Well-designed programs work, not because they create consumer demand, but because they satisfy consumer demand. And for that, they need not be apologetic to consumer advocates, regulators or anyone else. The American Bankers Association is right on the money with its observation that "Businesses that provide a good service that consumers want and need will make money."

Conclusion: "Bad" checks are never a "good" thing. Consumers should never be "encouraged" to do a "bad" thing. However, the second "Myth" above makes very clear that consumers don't have to be encouraged to need "a little help" every now and then. Any rational study of consumer financial behavior will show what consumers want and need: short-term; recurring; and hassle-free forms of "financing" and relatively small dollar amounts.

Consumers always have and will continue to seek ways to satisfy that need. This consumer demand is what has driven the growth of alternative financing sources such as: credit cards; finance companies; pawn shops and payday lending. And, no amount of moralizing is going to make this consumer demand go away. Naturally, financial service providers are going to find ways to satisfy consumer demand.

But, as always, "the devil is in the details." Well-designed and well-executed discretionary overdraft payment service programs, such as Strunk & Associate's proprietary "Overdraft Privilege^sup sm^" program, provide consumers with something they want. We believe consumers are much more capable of making informed and intelligent choices than some bureaucrats and consumer advocates think is possible.

By William H. Strunk

1 Source: Federal Reserve Bulletin, August 2002