Check kiting - the demise of Ponderosa Steakhouses in NE Ohio

[md-2000]

@Lord_Feldon

@Martini_Enfield

Australia and NZ also have much smaller populations than the US, which makes some of these changes easier to implement because there’s fewer people to be cranky old farts about it; if 1% of the population of the US wants to keep pretending it’s 1974 and refuse to stop using cheques, that’s still more than 3 million people - enough to make keeping the method around as an option for some businesses.

They also have many fewer banks per capita. The regulations tended to work the opposite way in the USA, to promote the creation of many small banks rather than a few national banks. There are small American towns with more locally-headquartered banks than the entirety of New Zealand, so any new change requires a huge number of cats to line up and walk in a parade.

This is the key point. Canada had the “Big 5” banks country-wide also, there are a few other small consumer options, including credit unions, but probably 90% of consumer banking is with the 5 big banks. When they introduce a new technology - payroll deposit, debit, tap, chip & PIN, photo cheque deposits, etc. - they agree on a format and everyone else in the business better get on board. So for example, I could pay my utility bills at the bank (or local businesses like the pharmacy, even) many years ago. Same, if you owed income tax at tax time, the banks would take it. I basically stopped writing cheques almost 15 years ago - once credit and debit were painless, most businesses stopped taking cheques - it just wasn’t worth the hassle described in previous posts… Most larger business were signed up for online payments from the banking systems about 15 years ago. Almost every business pays by direct deposit and has for 30 or 40 years (for small businesses, a payroll service at the bank will do this for them). I can’t remember when Income Tax refunds became electronic, but over 20 years ago.

I used to write maybe 2 cheques a year, to the landscaper who did end-of-year sprinkler system blowout, and to my wife’s uncle for sports tickets. Then about 3 or 4 years ago we got e-transfer, where you could send money from your bank online to anyone else also on the service by email. I think it’s been 3 years or more since I’ve written one cheque. I keep them around so I know the bank transfer numbers. We’ve had chip & PIN cards for several years before the USA. (But later than Europe, I gather)

A side note - for people who could not manage money or special needs, the very large business I worked at years ago, with an accounting department still doing what they did in the 1950’s, would offer the option for people to get a cash advance on their bi-weekly pay from the pay office. About 1990, they stopped offering this because (a) very few people took advantage of it any more, and (b) consumer credit was such that nobody should be that desperate for cash any more.

(There have been issues raised and dealt with over the years, regarding the level of debit and credit fees. Small businesses used to have signs like “no debit under $5.” A local lottery ticket kiosk still charges 25¢ for debit under $10, which I assume covers their debit fee. It took the threat of legislation for the big banks to go down from highway robbery to petty theft over fees. )

I gather the USA has/used to have legislation preventing consumer banks from being too big which explains their severely fragmented banking system. Canada has taken the opposite approach - making their banks “too big to fail”, and considering they are licenses to print money, and in 2008 were to cautious too get overly exposed to the subprime crisis - so far that strategy has worked.

[md-2000]

Came back to add - for the Ponderosa guy - probably, he had several dozen accounts going for his businesses with lines of credit at multiple banks and was bouncing money back and forth like a giant Ponzi scheme, building up debt while maintaining the illusion of high-volume businesses. If he also mortgaged the premises, etc. - then that would explain the massive loss. Since he owned a large number of high-volume businesses, this was not your Aunt Millie moving $50 to cover a cheque she wrote last Thursday. The amazing thing was that he could keep track of it long enough to build up that level of debt.

[Joey_P]

@kayaker

Years ago I was kayaking the upper Allegheny river and stopped in a little store. They had a Wall of Shame posted with bad checks! No idea if it’s legal, but public shaming seems like it would be effective.

I remember those days. We didn’t quite do that, but we did have a list at the register, that wasn’t quite hidden from public view, of names of people the cashiers shouldn’t be accepting checks from.
Also, there was a Seinfeld episode about that, The Little Jerry

[Thudlow_Boink]

@Martini_Enfield

It still amazes me that cheques are even a thing in the US.

They’re not, but checks are.

I don’t use checks much anymore, but still occasionally give or receive one. They actually are more convenient than they used to be, now that they can be deposited electronically with a phone app.

[Martini_Enfield]

@md-2000

This is the key point. Canada had the “Big 5” banks country-wide also, there are a few other small consumer options, including credit unions, but probably 90% of consumer banking is with the 5 big banks. When they introduce a new technology - payroll deposit, debit, tap, chip & PIN, photo cheque deposits, etc. - they agree on a format and everyone else in the business better get on board

Australia is exactly the same - four or five Big Banks, and a couple of second-tier banks and credit unions, and NZ was the same as well when I lived there.

[Dewey_Finn]

@md-2000

I gather the USA has/used to have legislation preventing consumer banks from being too big which explains their severely fragmented banking system. Canada has taken the opposite approach - making their banks “too big to fail”, and considering they are licenses to print money, and in 2008 were to cautious too get overly exposed to the subprime crisis - so far that strategy has worked.

It’s only been about 25 years since nationwide banks were allowed in the US; prior to that, they were only allowed to operate in one state. So lots of things that are common elsewhere are new to us here.

Also, I’ve never used a check in a store, but from observation, it seems the customer does very little aside from signing the check. The machine scans the account and routing numbers and uses that to debit the account.

[Mighty_Mouse]

@Dewey_Finn

Also, I’ve never used a check in a store, but from observation, it seems the customer does very little aside from signing the check. The machine scans the account and routing numbers and uses that to debit the account.

This is what happens at businesses where the POS is integrated with a check processing service. For many small businesses the cost of setting this up as well as the per-check fees are prohibitive.

I work for a Very Large Chain. We pay a fraction of one percent for check validation and processing. The cost of setting up our stores was in the millions, but this is being amortized over hundreds of millions of transactions.

Meanwhile the boutique run by a friend has an old fashioned cash register that is connected to nothing. He could use telecheck but it would cost him a few dollars per check. Even though he pays what he considers exorbitant credit card processing fees (2-3%) the check processing fees would be much higher.

Check payers are slow not just because of the mechanics of paying by check, but also because they are (on average) old. Everything they do is slower. I worked in a store for a week as a supermarket cashier a couple of years ago and I did not get a check from anyone that looked under 70.

From an industrial engineering point of view checks are the second slowest form of payment after paper WIC. This does not account for the speed of the customer, just the mechanics.

Debit/Credit payment has been getting faster for decades. Check payment has not.

[Joey_P]

@Thudlow_Boink

I don’t use checks much anymore, but still occasionally give or receive one. They actually are more convenient than they used to be, now that they can be deposited electronically with a phone app.

That’s actually an interesting point. For years my employees were begging us to do direct deposit. But with only about 15 employees, the cost to do that worked out to a $1 per check. A few days ago, a new employee was being trained and I heard someone say ‘we don’t do direct deposit, but you can just take a picture of your check’. That’s when I realized why no one had asked me about that in a while. While a mobile deposit is slightly more work than a direct deposit, it’s nothing compared to driving to the bank.

[mixdenny]

@md-2000

Came back to add - for the Ponderosa guy - probably, he had several dozen accounts going for his businesses with lines of credit at multiple banks and was bouncing money back and forth like a giant Ponzi scheme, building up debt while maintaining the illusion of high-volume businesses. If he also mortgaged the premises, etc. - then that would explain the massive loss.

And if you look at the numbers: $800 million and only 300 checks these were 2 to 3 million dollars per check.

[Joey_P]

@mixdenny

And if you look at the numbers: $800 million and only 300 checks these were 2 to 3 million dollars per check.

300 checks a day for about 5m/day. So $15k-$20k each. I think the $800m is the total of all the checks written during the 21 month period (or the amount of checks the bank felt he kited) and the 4.12 million dollars sounds like the amount his bank accounts were worth when the bank (presumably) froze his accounts so no more checks could be drawn off it and no more deposits could be made into it. So the bank is out that money.

The indictment says the more than 300 checks were eventually being cashed daily for amounts totaling between $4.9 and $5.25 million each day. When FirstMerit officials discovered it, they suffered a loss of around $4.12 million.

[Chronos]

Yeah, you don’t get to nearly a billion (positive or negative) from owning a dozen-odd restaurants. Most of that $800 million number is from the same money getting counted many, many times.

[Melbourne]

@Joey_P

. A few days ago, a new employee was being trained and I heard someone say ‘we don’t do direct deposit, but you can just take a picture of your check’.

The last cheque I got was probably a dividend payment. Although people didn’t use cheques much, the businesses used to love paying that way, because they knew that cheques like that would sit in a drawer for a couple of days, or maybe a couple of weeks, or maybe a couple of months …

[mixdenny]

@Joey_P

300 checks a day for

Oops! 300 checks a day - Christ I couldn’t afford the checks.

[Joey_P]

@mixdenny

Oops! 300 checks a day - Christ I couldn’t afford the checks.

samsclubchecks dot com. I buy checks, a thousand at a time, for about $70.
Not that you asked, but it’s the cheapest place I’ve found to buy business checks.

[mixdenny]

So $14,000 in checks.

[needscoffee]

@mixdenny

So $14,000 in checks

I wonder how he paid for them…

[md-2000]

@mixdenny

Oops! 300 checks a day - Christ I couldn’t afford the checks.

A while ago, about 1995 I think, my bank used to charge a decent amount (I think it was $1 or 50¢) for each cheque over a certain number that I wrote. (Service fees! How does any bank ever go broke??) But then, if he was kiting millions of dollars, the few dollars in service fees would be irrelevant.

[Raza]

I don’t write checks (though I recently had a flooring contractor prefer them, so I did), but I know with my banks Bill Pay service there are some vendors (like lawn service) that haven’t set up to receive electronic payments, so the bank’s Bill Pay servicer prints and mails a check on my behalf.

I work for an insurance company. They do print checks for claim payments.

[Mk_VII]

fewer and fewer businesses here are willing to accept cheques now - I can’t remember the last time I wrote one, and even then it was something like a hobby club treasurer.