If you own a house, you've probably received at least a couple of official-looking "checks" in the mail, made out to you personally for anywhere from $15,000 to $75,000.
Often the checks resemble the one that arrived at the home of an Arlington family in May: It was for $41,750 and carried a prominent Federal Deposit Insurance Corp. logo reading, "Each depositor insured to $100,000." It also featured a 10-digit "Reservation Number" and the boldface words "Voucher Certificate."
The check, of course, was a fake--a "look-alike" in the lingo of direct-mail marketing. It was actually a promotion for a high-interest-rate equity loan sent to homeowners whose private credit files had been electronically prescreened. But that check--and copycats sent to millions of American homeowners during the last year--have caught the attention of Congress and may be heading for junk-mail oblivion.
Key members of the House Banking Committee, supported by national consumer groups, want to ban all forms of loan solicitations using checks that are immediately cashable--so-called "live checks." They also want to empower the Federal Reserve Board to restrict loan promoters' ability to mail highly deceptive look-alike checks, which aren't directly negotiable, but use FDIC or another federal agency insignia and bank clearance codes to appear legitimate.
Under current federal law, mail promoters have virtually no restrictions on sending out either live or look-alike checks to homeowners. Rep. John J. LaFalce (D-N.Y.), ranking minority member of the banking committee, thinks the lack of federal guidelines results in large numbers of consumers being confused by the checks that arrive in the mail made out to them.
Some recipients who fall for the solicitations get trapped into "high fees [and] higher interest charges," LaFalce said, then discover they can't handle the extra debt load.
LaFalce and a group of committee colleagues last week introduced the "Unsolicited Loan Check Consumer Protection Act of 1999" and plan to push for passage in this congressional session. The bill would shut down all live check solicitations, just as Congress shut down live credit-card mailings in 1970. It would also give the Fed legal authorization to define the parameters for look-alike solicitations, such as by restricting the use of federally related logos, images or codes.
Stephen Brobeck, executive director of the Consumer Federation of America, says that no matter what form live or look-alike loan check solicitations take, they are potentially dangerous because they open the door to credit overdoses.
"The nation is awash with consumer credit," says Brobeck. "There is not a household who can afford more debt who doesn't have ready access to it" through conventional lending avenues.
Other critics of loan checks point out that the promotions frequently:
* Carry higher-than-average interest rates and fees compared with more traditional sources of credit. Live checks sometimes carry effective interest rates as high as 25 percent.
* Deceive recipients intentionally. "Why have bank transfer numbers and FDIC logos imprinted on the checks if you're not trying to fool people?" asks a banking committee staff member. "This is not simply to catch your eye."
* Target vulnerable members of the public, such as seniors and debt-burdened homeowners having trouble with bills. "When you suddenly have a check in your hands and it promises that all you have to do is sign it or call a toll-free number and you get $12,341 in your account," said one mortgage industry critic of the promotions, "you can imagine the temptation."
The upshot for you if you receive one of these checks? Bear in mind that if you truly need an equity loan, the odds are that by using the Internet, scanning rates advertised in your newspaper or simply calling local loan brokers, you can locate a better deal than what you're offered through a fake check.
Also take a hard look at the promotional letter that accompanies the check. The large print may read: "Dear Homeowner, we are pleased to inform you that you have been pre-approved" for $53,725 or whatever amount the check says. But search for the inevitable block of small print, usually at the bottom of the letter. You'll probably find weasel words that limit or even contradict the large print above.
For example, here's a sample of the fine print in a look-alike check promotion from a Laguna Hills, Calif., lender that used the "Dear Homeowner" and "pre-approved" language above: "This offer may not be extended if, after responding to this offer, you do not meet the criteria used in the selection process." The fine print effectively nullifies the "pre-approved" status that the large print promised.
What kind of pre-approval needs to get reapproved before you qualify for the money? Not the kind you can really take to the bank.