Question: The Grinch that stole my Christmas shopping is Telecredit. The store where I was attempting my purchase was Leather Land in Fashion Square, Sherman Oaks.
I was in the store at about 3 p.m. the Sunday before Christmas and bought a child's leather jacket for my granddaughter and a pair of lamb's skin slippers for my daughter. The bill came to $105.42, and I paid by check with the standard two pieces of identification--driver's license and my Visa card. The license expires in '91 and the Visa card has about $2,000 in credit available.
The store called Telecredit (a check validation service to which merchants subscribe) and then the store told me that my check couldn't be accepted because I was "over the limit." The woman in the store seemed to think that the "limit" had to do with the amount and number of checks written that day . . . or the past two days. She said she didn't think it had anything to do with the amount of money actually in the bank.
Up to that point, I had written only two checks that day, totaling $306, all for Christmas shopping. The day before I had written six checks totaling about $330. And, of course, I was a long, long way from being overdrawn at Security Pacific.
To prove the point (although, by now, most of the other customers in the store had already drawn their conclusion that I was a hot-check artist), I went to the nearest Security Pacific automated teller and withdrew $40 so I would have an accurate account of my money in the bank. The Ready Teller (time on slip was 3:24 p.m.) receipt showed I had $6,507.56 in my checking account.
There are several areas of pain here: the humiliation of having a check rejected in public; having Telecredit decide what my Christmas budget and spending habits will be; having my Christmas shopping (at least by check) brought to a screeching halt; being forced into a credit-card purchase at the standard high interest rate and, finally, being left to ponder the question: Must I now ask Telecredit how much I can spend on gifts for my mother for her upcoming birthday?
Please scramble my initials so that my ex-wife doesn't find out how much money I have in the bank.--P.O.
Answer: Your ex-wife, if she happens to be in the financial-planning business, might not only wonder how much you have in your checking account but also why you have that much in such a non- or low-yielding account.
Telecredit, which began several years ago in California and has since gone national and moved its headquarters to Tampa, Fla., is a most curious business. The popular notion surrounding its operation--as Lynden Fellerman, who is responsible for the company's check-credit division, admits--is that Telecredit is some sort of vast, computerized network through which a consumer's check is matched against the outstanding balance in his account . . . operating in very much the same way that an automatic-teller machine does when you are withdrawing cash. It's a romantic idea, but "we're not tied into any bank or anybody's personal checking account," Fellerman added.
Not only does the company have no idea of how much any of us have in our checking account, but at least in principle, it doesn't even care. And, even if it were possible to compare all the checks that a customer writes against an actual bank balance, it would be less than meaningless as far as determining the validity of the check is concerned, Fellerman said. "The funds may be there today , but it sure doesn't mean that they'll be there next week. At the very best, it's going to take three or four days for a check to clear."
In other words, the fact that--in actuality--you had a balance of more than $6,500 in your checking account when you wrote the rejected check didn't mean diddly. There was no way for anyone to know that you hadn't written checks for twice that bank amount in the previous day or two. None of them would have cleared your bank yet.
"While Telecredit isn't, technically, an insurance company," Fellerman added, "we operate like one in that we establish parameters--on which checks are accepted or rejected--based on statistical norms. And these are set up to give merchants the greatest possible flexibility in accepting checks but protecting them from loss at the same time."
And, at least in one respect, Telecredit is an insurance company in the sense that if a member-merchant accepts only checks that are cleared by the company, then Telecredit eats the losses.
And bad-check losses nationally, according to Bob Cekosky, a consultant to local merchants on the subject of check-and-credit card fraud, amount to about $4 billion a year. Locally, Cekosky adds, about one check in every 80 written and honored is "bad"--either because no such account exists or because of insufficient funds.
Telecredit's annual losses, according to Fellerman, amount to between 1% and 3% of the face amount of the checks involved. But the losses are Telecredit's, not its members.
"The average merchant without our service," Fellerman adds, "tends to go to extremes. Either he goes the very liberal route, accepts a lot of checks and takes a bath, or he tightens up to the point where he drives away a lot of business. The perfect mix in a perfect world would be to turn down the 'bad' checks but not the others."
The parameters that Telecredit uses, he continued, are a continuing study of the normal (read that as "good") check writer's habits: the number, frequency and amount of the checks he writes and, just as pertinent, where he writes them.
"We're not all that interested in the customer who writes four $20 checks in rapid succession," Fellerman said, "but he starts attracting our attention when he writes four $200 checks in the same period of time. So, we're tracking the consumer as he shops, and we get very concerned about the check writer who goes from one stereo shop to a second stereo shop to a third stereo shop--that's not normal behavior."
These parameters, Fellerman said, are a closely guarded Telecredit secret. "The professional check artist is pretty smart, and it doesn't take him long to figure them out. That's why we change them frequently, and at Christmas, of course, we open them up considerably--and we also get beaten a little more because the season brings the crooks out in droves. The trick is to keep them guessing about the parameters."
What this insurance against check loss costs Telecredit's about 50,000 members, Fellerman said, is based on a sliding scale that takes into account the type of retailing operation, its dollar volume and the degree to which checks are encouraged. Generally, though, he added, the cost is between 1% and 3% of the face value of the checks accepted.
What the customer can do to avoid the sort of embarrassment you experienced, Fellerman said, is to get pre-authorization from Telecredit for an expanded, personal parameter if you know that you are about to engage in a flurry of check writing that, otherwise, might trigger suspicions.
However, be advised that it isn't particularly simple because it involves you calling Telecredit in Tampa, (813) 886-5000, which, in turn, will send you a form that you hand over to your bank. It is a questionnaire about your average daily checking account balance, your credit-card-payment history and any experience the bank may have had with you in regard to bad checks. Remember, a smart professional bad-check artist also knows about this Telecredit service too.
So, just how did your check to Leather Land happen to trigger a rejection?
"We can only theorize," Fellerman admits. "The man had written six checks the previous day and two on the day when this happened. So, we have to assume that he must have hit two, three or four merchants in those two days, all of whom, by coincidence, just happened to belong to Telecredit. Normally, the odds would be against this."
Incidentally, Lisa Sorbergskog, the manager of Leather Land in Sherman Oaks' Fashion Square, remembers you--and the incident--well and regrets the embarrassment you experienced.
"But it's very, very uncommon," she said. "I felt badly, but we find Telecredit, generally, a very valuable service to have."
Sorry. It was the luck of the draw, and the odds on it happening to you again are pretty remote.