The Long Shadow of Checks(bitsaboutmoney.com) |
The Long Shadow of Checks(bitsaboutmoney.com) |
patio11: you write a lot, and have taught me a lot, and I appreciate it. But I want to make a small complaint. You frequently say things like "for charming historical reasons" and then _cite no sources_. Link something! Cite something! As a reader, I regularly feel like you are teasing me or showing off to me when you include all these small asides without any further reference or any concrete details.
If we're interested in such a trivial matter as to why the crime was called "uttering" one can always look it up.
Take this passage, for example, where the term "Clearing" is expanded upon:
> The UCC facilitated banks clearing each others’ checks. (“Clearing” is a magic finance word. Clearing a check refers to completing the process which the check agrees to: the writer sees money leave their account and the person depositing the check sees it enter theirs. This is much more complicated than it sounds in this quick gloss.)
> Since the standard U.S. bank account is a checking account, even if it cannot write checks, it is necessarily a credit product.
Why is this the case? Checking accounts without the ability to overdraft and thus create credit risk exist; I've always wondered why they're not more widespread. Is it a problem that people who are Chex blacklisted are unprofitable anyways?
Just because the writer of the check sees the funds of their check leave their account, this does not mean the recipient of the check has collected those funds. At any given moment, there is a considerable amount of money belonging either to check writers or recipients, not under their control yet being invested in overnight investments and repurchase agreements for the profit of the bank(s) involved. This becomes quite exaggerated when you think of the time zones involved and the fact that the resolution of the clearing houses is greater than or equal to 24 hours. So a check from an account in Puerto Rico to an account in Hawaii will take a minimum of 24 + 6 hours = 30 hours for the bank(s) to get a return on their customer funds. As the article points out, the "clearing" of funds to the recipient's account is an act of credit and not an act of money transfer.
I remember an article, probably from 20 years ago, warning people that the check infrastructure was about to change and people who were "floating" checks for 2-3 days (relying on this behavior) weren't going to be able to rely on it any more. I think that was when they went to electronic scanning at the bank itself.
Consider for example personal check issued between banks in two countries. There may not be a formal complete resolution process, so funds are released to you only after your bank is reasonably certain that the other bank is going to honor it, or more likely, not going to ask for it back.
Not for me. I live in Norway. I suddenly became an absent party of a class action lawsuit in the USA. The settlement came in the form of a check. A small amount, maybe around $50. But the cost of cashing it in Norway was more than the value!
It works like this: receive invoice, wait until due date, write a check dated for the due date, wait a few days, send it through regular mail, and complain about the past due notices because "I've already sent the payment!! Did you lose it or something?" Applying late fees doesn't work either, they'll just send a late payment again without the late fee included.
At first, I genuinely thought it was because they preferred checks for record keeping purposes, but when I set up echeck and told them how they just need to call us and give us the check number to pay. Or they can just enter their information at our payment processor's portal. Nope! It's "insecure" (Sir/Madam, you're sending me a piece of paper with your bank account and routing number and it's going through the mailing system where mail gets lost...). For that same reason, they don't want to pay with a card either.
That's why the cost of paying the transaction fees for card processing is so worth it to me. I got the check scanner years before the COVID lockdowns to speed things up, but nothing beats the sometimes instant card settlement deposits. I still accept checks from responsible, timely payors, but stop doing business with anyone who has a pattern of paying late with checks. It's not worth the additional work to get them to pay (there's truly no way to know what their intent is - are their lateness predictable or is this the month they're going to wait 45 days to pay?). I'm fine with letting someone else wait for them to pay late.
One thing that still seems to be missing from bank cards is the lack of ability to add your own identifier (namely the check number) to the transaction at time of payment. I understand that, for responsible payors, this is why they might prefer paying with checks - you not only get a reference number, a memo line, and a date that makes sense for your own internal system. Even with bank cards, the date of the transaction is sometimes not the date that it actually happened, which can be confusing for record association. Zelle has a memo entry, but the reference identifiers are letters and numbers, ew. An internal auto incrementing number to identify transactions would be really useful.
Anyway, hopefully paper checks will be phased out. Although I do still find them useful for interbank account transfers - the Zelle multi-account trick still makes me kind of queasy.
For example, payroll - there's literally no reason your employer needs to store your account and routing number as another piece of your personal info that they can lose when some hacker finds out their MySQL admin password is "admin"
Like, the system should be that you give your employer your banks name, plus a UUID associated with your account that allows entitys to deposit but not withdraw funds for you account. It would be trivial to implement and make things much more secure, but instead we're stuck with the account+routing number system that's basically paper checks but put on a computer.
Charitable donations - Many charities maximize every penny, and electronic contributions eat into that.
Paying my accountant - Good accountants make every penny count, and aren't interested in tithing from their revenue to credit card companies.
Tipping the paper boy
Tipping the doorman (Though recently, I've switched to cash for this, as it looks better in a Christmas card)
Business license renewal in certain cities
Some of my recent real estate transactions have required checks to be written to various local authorities, county clerks, etc.
Making IRS payments without a fee
Paying the gas bill. My gas company charges $5+ to pay by credit or debit card.
Paying the rent. My building's management company charges $20 + a percentage to pay by debit card, or $50 + a percentage to pay by credit card. If I pay my bill with a check, there's no surcharge. If I pay by credit card, I have to pay another $113.
Paying the electric bill. The electric company charges $5+ to pay by credit or debit card.
Passport renewal fee. Renewing a passport by mail in the United States *requires* a check or a money order.The first is true, but the second is not. Check fraud was a very big deal for years for criminals. I don’t know if it is anymore given the progress in electronic payments.
Your comment, in contrast, strikes me as being much closer to a reflexive political rant than the essay.
Historically, it's a major source of revenue for banks[1]. I used to use BOA, when I switched to a local credit union they at least offered me the choice of "overdraft protection," which obviously I declined.
Fortunately, overdraft fees appear to be growing less profitable[2], so hopefully banks will phase them out.
[1] https://www.consumerfinance.gov/about-us/newsroom/cfpb-resea...
[2] https://www.consumerfinance.gov/data-research/research-repor...
If anything, anybody accepting a check for payment and delivering goods/services before it clears is extending credit in a way, but that has less to do with the bank account and more with pre- vs. post-payment for goods/services.
Car dealerships are pretty bad too.
Why is it not possible for a bank to just always decline payment for checks drawn on overdrawn accounts as a matter of policy?
The other, and probably more relevant, credit aspect of checking accounts is depositing a check which might bounce (due to an overdrawn account) – but that also seems avoidable by just making checks available as late as legally allowed (i.e. on the second business day after deposit as far as I understand)?
But checks can bounce much later than that. When the originating bank demands the money back, you'll have to ask the customer for it back if they've already taken it out.
Instead of one standard overdraft fee, smaller miscues might amount to a few bucks or something.
Transactions in the hundreds or thousands could be proportionately larger.
Maybe a "window" should be available for reversal of NSF fees if a balance is brought up to cover the credit amount.
I can see the point of waiving the fee, but someone has to cover the cost of funds aren't available.
Should the grocer have to eat the cost of goods you purchased? How about the bank?
Arguably, no.
Why should these fees be scaled? There's no variable cost to the bank returning an item (i.e. a check, ACH debit etc.) as unpaid, unless I'm missing something.
Overdraft fees, on the other hand, have always seemed very strange to me, since I grew up with European-style banking: Overdrawing an account is standard procedure in most European countries and is just considered a form of credit, with standard interest rates and everything.
Calling it anything other than credit seems to me to be mostly an artifact of the structure of US banking (i.e. the fairly strong separation of the lending and deposit-taking sides of US banks).
This certainly seems to be the standard accounting practice at most contractor's I've worked for. Including choice tidbits like "We know the due date was Thursday, but the only person our JV agreement allows to sign checks is out until next Tuesday, so your check will be on that run."
That's been the reality in many countries other than the US for decades :) And maybe (hopefully!), the US will finally catch up with FedNow.
Of course that model doesn't work for everything (it's usually a bad idea to pre-pay for goods or services with bank transfers since there is essentially no consumer protection in case the merchant goes bankrupt or turns out to be a fraudster), but I'm still fascinated by the US's lack of a "giro" system, i.e. an accountholder-initiated P2P and B2C push payment service.
We have wire transfers which work like this, through the FedWire system. They're instant, can't easily be reversed, and usually expensive and inconvenient to use.
I'm surprised there's no way to opt-in as a consumer, or that some middleman doesn't want to really push it to gain more data to mine.
I think on a practical basis, though, it's flagged by the BIN (the first 6 or 8 digits of the card number)-- if it's not in a known commercial-card range, the data might not get sent upstream, so random users turning it on wouldn't work.
For someone other than a merchant to transfer money out of your account with just your bank details, they would have to either try to pass a fake check or set up your bank account as an external account that they can transfer money out of to one of their own financial accounts. But external accounts are typically verified with test deposits before they can be transferred to/from.
I suppose something like that can only exist in a high trust environment.
So now Bob's Valley Energy Inc has the information to empty your account.
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(Though FWIW, probably neither your employer nor your utility company is storing the information themselves in a MySQL db.)
I've never had to actually do this myself, but as far as I understand, there's a process for that just like for credit card chargebacks, and a legal requirement to do so within 10 days of reporting the problem to your bank.
Of course being out the money for 10 days is not pleasant; I also do wish there were ways to limit ACH payments a bit more proactively.
Having grown up with banking outside the US, even that concern seems largely bizarre to me. Bank account numbers are routing identifiers, which have no business being used as bearer tokens!
To be fair, the same thing (i.e. direct debits that can be initiated using only somebody's account and routing number) is possible in many other countries as well, but usually it's only used for very low-risk payments, since reversals are usually just a click away, with no recourse for the (former) payee.
> Like, the system should be that you give your employer your banks name, plus a UUID associated with your account that allows entitys to deposit but not withdraw funds for you account.
That UUID is just the account number. What needs to change is being able to initiate debits from somebody's account using only the account number; being able to make credit transfers to them is usually not a problem.
For example, I don't see why banks can't offer two forms of account numbers: One that's only usable for inbound payments (and automatically bounces debits of any form, whether (fraudulent) check or ACH), and one that allows debits as well, possibly even limited to a single payee.
If it were truly trivial, this would have been implemented long ago. This isn’t a pure engineering problem as much as it’s a “convincing people to do it” problem.
It is scary that the info you need to deposit funds into an account in the US also allows you to withdraw funds from it.
[0]: or whatever thing one wants to say is responsible for generating the idea of multiple electronic wallets. I get that some people think crypto is dumb. Take your pick on what was responsible for this idea.
I think you are exaggerating, conflating "checks" with "electronic transfers from my (checking) account".
IRS has an excellent electronic debit system. Sure, the money comes from my checking account. Are you saying that is the same as a check?
> Paying the gas bill. My gas company charges $5+ to pay by credit or debit card. > Paying the electric bill. The electric company charges $5+ to pay by credit or debit card.
e-pay by the bank... is the same as a check? Maybe...
The whole thing about the rent is surprising. I'm surprised you don't get billed for checks. I had a direct-debit-only landlord recently. Surcharge for everything else.
You forgot: your cable company also wants direct access to your bank account and will give you $5/month for the privilege. So consider that a fee for paying any other way.
They actually have two! Direct Pay and EFTPS use ACH (electronic check) and are both free.
Personally, there's very little anymore that I need to pay by physical check -- almost everyone takes credit cards, and for those that don't (or who charge more than 2% for credit card transactions), I use ACH.
> I'm surprised you don't get billed for checks.
Not too many years ago, I had a landlord (a big property management company) who charged a fee for electronic payments. I forget how much exactly, but it was ridiculous -- like $10 or $20 per payment. For them, I used my bank's online bill pay, which behind the scenes is just the bank printing out a paper check and mailing it to the payee. I bet they've switched to free ACH payments by now.
Lately, the only cases I can think of where I actually pull out a check book and write out a check are to pay (1) a contractor (electrician, landscaper, etc.) and (2) for a campsite at a self-service campground. Most parks take credit cards (just write your payment information on the registration slip) but a few don't. I'll pay cash if I have exact change, but as I don't make a habit of carrying around lots of small bills it's helpful to have checks just in case.
Cheques cause significant processing costs*, so market forces idealistically should eventually select for quicker and less risky payment forms.
Cheques are no longer used in New Zealand because businesses didn't want to receive them once better (from the businesses' POV) forms of payment existed. https://news.ycombinator.com/item?id=38159600
Australia is also cancelling cheques: "Earlier this month, the government announced it was following New Zealand, Denmark, the Netherlands and others, closing our cheque system down by 2030" - https://www.abc.net.au/news/2023-06-21/cash-almost-gone-aust...
* From the Ozzie article: "The average cost of everything that had to happen to process a cheque exceeds $5 per payment"
But maybe I've just also been lucky with my service providers – all of mine support at least free debit payments; quite a few of my utilities even accept credit cards without a fee.
When doing this do you name of the person you’re tipping, or just give them a check with the first line blank?
But not for tipping the bellhop at a hotel. I think that would be weird.
As for writing checks to people whose name you don't know (or in my case, there are certain doormen whose names I would surely misspell), you just write "Cash" on the name line.
This one is actually kinda convenient for credit card point churning. For one thing, if you overpay you know you'll get it back.
Maybe it could have included more on bona fide fraud. But it doesn't contain an assumption that true check fraud is non existent. And it certainly doesn't devolve into any sort of rant.
You can go even further and not include the parts of the review you don't think are important
As a change
> The article downplays the historical impacts of cheque fraud, which were resolved by electronic payments, see source[0] for more details
When did it expire? Depending on the terms of the settlement, they may have forwarded it to a state's unclaimed property office... It's probably not worth your trouble for $50, but maybe you can still get it back.
The equivalent to SEPA credit and debit transfers would be ACH, just that in the US, it is generally not possible for individual/private account holders to initiate outbound ACH credit transfers.
FedNow might be just that, but I’m not sure yet US bank customers will become comfortable with sharing their account number freely in order to receive P2P payments that easily.
I probably spent four or five hours dealing with the paperwork engendered by just giving them money for a car. Transactions handled locally would have amounted to half that at most. Get cashier’s check from my bank, give to dealer, leave with car and go to tax office, hand them paperwork, leave with tag.
Certainly some of his subject matter is truly turgid (even Matt fails to make me interested in Musk's antics).
Despite that, I still get a lot from his writing.
The point was joyful self-expression. You can go make your own painting with no happy little trees if you want.
...no, it's a simple comment about a writing style. You don't need to try and make it out to be anything else.
It's very normal to still interact with things in life that aren't exactly how you'd want them to be. The overall net value of their content has spoken for itself over and over.
> You can go make your own painting with no happy little trees if you want.
Yet I won't, because I still want to read their content. That's the entire point.
But, can't you say the same thing about a credit card? Heck, you don't even need a password for that; everything you need is right on the card.
Or, your mobile device (if you pay through near-field tech)?
Not to sound like someone who wants to get your bank details, but which bank allows you to delay ACH payments until you approve them? All someone needs to get money from my account is the (publicly available) routing number for my bank and my account number. Boom. Now I'm paying someone else's Verizon bill and have to call my bank and say "I can't believe you think I'm someone who would waste money with Verizon!". What I really want is access control for all ACH transactions. They said it wasn't possible for me to do an allowlist for ACH. I basically just have to call any time a fraudulent transaction comes through to stop payment. OTOH, with certain card issuers (AmEx I think?), I can simply press a button to declare a transaction fraudulent.
>But, can't you say the same thing about a credit card? Heck, you don't even need a password for that; everything you need is right on the card.
Checks have that too. Except there are hundreds of copies of them. Someone just needs to see one check to get all the information they need to withdraw from your account.
OTOH, I turn my debit card off, so having that information is useless unless someone knows when it's on. I can actually do this with most of my cards, debit and credit. Coupled with virtual credit cards, it's a really effective way to secure money. Or at least have stricter control than a classic bank account.
It being replicated widely (see also: SSNs) doesn't make the "account number as a bearer authentication token" approach any less insane!
I believe that the only way to get some momentum in getting away from this unfortunate situation would be regulatory intervention – using market forces alone, convenience and inertia will just inevitably punish whoever moves first by introducing even the slightest amount of friction.
Otherwise, the US would already have PINs for POS payments and 3DS challenges for online payments using credit and debit cards.
1) This is awesome :)
and
2) How much of this is you, and how much is ChatGPT? (Or a thesaurus?)
Still, I tip my hat to you! :)
Probably just someone who likes to read older books. There have been a lot of so-called inkhorn terms in English; some made it into common use, some remained but are rare, some died on the vine.
Your only option there (as a banking provider) is to debit the account (even if it causes the balance to go negative) or eat the loss, and then manually dispute the charge.
It's not (yet) clear to me who ends up responsible for this -- but I suspect it's the bank side.
Historically, the default assumption was that a credit card was always good for payment; the issuer took the credit risk for the cases where that was not the case. Ubiquitous electronic/real-time authorizations (a concept also known as "zero floor limit") have changed that default assumption and liability, but are a relatively new feature for credit cards.
Since debit cards in the US usually feature at least one international "credit" scheme/brand (credit in the historical and processing sense, not in terms of actually being funded that way), there can accordingly also be force-posts.
The issuer can trivially charge back any such charge in case of insufficient funds, though, just like they can with checks.
This is mostly true for credit cards as well, by the way! For historical reasons, some merchants (like hotels or car rental agencies) treat the two differently, but there is no formal basis for the distinction anymore. There is still a practical difference though: Opening and maintaining a credit card usually requires having a non-disastrous credit score; the fact that somebody can present one that still allows authorizations by the bank to go through can therefore serve as a weak proxy for that customer's credit.
tl;dr: The merchant (or their bank) is almost always liable for this, not the issuing bank, with very few exceptions.
Do you think cheques are not processed by computers?
I'll give you "slow," but it depends on how you define slow. Checks where I am often clear in a day. Rarely longer than two days.
As for the rest, no, those problems are not solved by replacing checks with electronic transfers. They still exist, just in different forms.
And I never said checks aren't processed by computers. I stated that replacing checks with computers adds more points of failure.
Or do you somehow not notice the litany of things that go wrong with computers every single day right on the front page of HN.
Just because it's all electronic doesn't mean it's failsafe.
That's extremely slow. Electronic transfers are basically instant these days.
> I stated that replacing checks with computers adds more points of failure.
It literally doesn't. A cheque is one big point of failure that doesn't exist with electronic transfers.
> Or do you somehow not notice the litany of things that go wrong with computers every single day right on the front page of HN.
"Computers" aren't a single thing. Bank transfers are ridiculously reliable. Far more reliable than cheques. And as I've already explained, cheques are processed by computers too so you aren't somehow skipping the possibility of programming bugs by using them.
I'd assume that even in the US, video taping everybody's plates wouldn't be that hard either, but actually getting your money back as a gas station owner might not be trivial.
Not so long ago it was common enough in some places to have to go inside, give them X cash, then pump, then come back inside to get change - they would set the pump to only dispense up to X. It's basically that system digitized.
If you go back far enough the only record was on the pump itself, so it was either full service, or trust people would come in a pay what they pumped. People did just drive off sometimes in that case, but at least in the full serve case, you still had their gas cap and plate number, which was a disincentive.
https://en.wikipedia.org/wiki/Young_and_Innocent
The car is a Morris and the gas pump is a pole coming out of the ground and rotary hand pump at the top of the pole to dispense petrol.
I love old movies for these at glimpses of early technology.
It's the same concept as paying for a meal at a sit down restaurant: they authorize your card for the check amount plus some extra, then you write in the tip on the receipt, then the restaurant captures the correct amount later (at least, that's historically how it works, many restaurants are shifting to payment terminals where it's all done at once).
You what? That's bizzare.
When I went on long driving trips, gas station attendants would be confused when I went in to get $20 on pump three but hadn't pumped. I haven't been out on the road and paying cash for gas in a long time though, I think there's probably some stations where you can pay inside after you pump.
Yes, you just pumped however much gas you wanted and paid inside. This was before there was credit card readers on the pumps. Closer to 20 years ago.
If you pay outside (card), you control both cost and volume. But it pre auths $100 or something.