I was taught years ago that there was a difference in the US between a local check and an out of town check. Some businesses were supposedly wary about accepting them and local banks were more cautious if you wanted to cash or deposit them and might put longer holds on the funds.
Was there ever a formal legal or industry definition of an out-of-town check with bright line rules to divide a pile of checks into local ones and out-of-town ones, or was it a spectrum of relative risk and bankers and businessmen got increasingly jittery with increasing distance? E.g. if you were in LA, a check from Reno made you look twice at the signature and passer’s ID. A check from Chicago meant taking fingerprints and doing a background check. A check from Pittsburgh meant this plus a 6 week hold on the funds as well as full body cavity search, and a check from rural eastern Maine sent you into panic attacks and full scale paranoia.
Does the concept of an out-of-town check exist anymore today in a meaningful sense?
Thoughts:
It doesn’t make sense for it to be the case that an out of town check is defined as one that is drawn on a bank that is outside the limits of the local municipality. If this were true, then a check drawn on a bank in Urbana, IL would be considered out-of-town if an attempt was made to pass it in Champaign, IL, but the towns are distinct only in law and form one effective economic and cultural area. One might even be able to walk across the street into the other city to check on the validity of the check.
It used to be the case that the landscape was dotted with branches of little banks that only had branches in one small area. If you lived in Southern New Jersey and took a trip to the West Virginia Panhandle, none of the banks would be familiar to you and the people there would likely have never heard of the bank printed in your checkbook. Nowadays, huge chains have branches all over the place and you can find a Bank of America almost anywhere. Is a check written by a California resident on their Bank of America account that they opened in LA considered to be an out-of-town check if someone tries to cash it at at Bank of America branch in Philadelphia or does the fact that LA and Philly both have Bank of America branches who one would hope can look up the status of any Bank of America account make this concept irrelevant?
“Sorry, Joe’s Quality Catering and Shoelace Retying Services does not accept out-of-town checks pursuant to Company Handbook Section 33.A.4 Subheading Q. According to the Supreme Court case Bob’s Hats, Inc. v. United Savings and Loan (1965), an ‘out-of-town check’ was defined as ‘a check drawn on a bank whose closest branch to the site of the current transaction is more than 150 miles away as the crow flies or more than 50 miles away if separated by a body of water that is at least 5 miles wide at the point where the direct line of travel intersects the body of water’. I have a business directory of bank branch locations and an atlas. I’ve marked all the locations of McGee Valley Bank on the atlas as well as our current location. As you can see, the closest one is 156 miles away in Smackerville. Sorry, get lost, get cash, or get a check drawn on a closer bank. You could try Heartland Savings Bank, they have a branch that is only 142 miles away. Be careful though, it’s halfway up a mountain top. Don’t get lost or killed by a landslide!”
It seems strange in the current world of internet banking and banks with national branching, but until not all that long ago, branch banking was very regulated, and many states limited banks to a small number of branches within a limited area, or even prohibited branching altogether. This article, about the introduction of interstate banking, goes into some detail about the history of branching. At a time when banks really were local, restricting out-of-town checks made a lot more sense. I can remember out-of-state checks being an issue, but with interstate banking, they don’t really exist anymore either.
I know out of state checks were handled that way as recently as 5 years ago (might still be, haven’t used checks in a LONG time). Even checks drawn from the same bank, but with an out-of-state address cost extra to cash (at the bank).
I live in California and have a checking account with a credit union in North Carolina. While that CU has partnerships with other CUs it only has the one branch in NC. I believe my checks would be considered out of state checks.
Yes. I was a Bank Teller, for Chase Manhattan Bank, in Manhattan, in the early 90s.
There were a list of easily identifiable routing numbers we considered “in-state” checks (the state was New York) and in-city checks. A teller could tell at a glace on any check whether it would be considered in-City, in-state, or not. The routing number is one of the numbers written across the bottom of your checks. The first 4 digits were associated with location.
There was some sort of faster bank-to-bank clearing process if the check was instate, compared to the 5-7 days it took to clear a check by sending it to the Fed. Usually an instate routing number would clear in 3 days. I actually don’t think being in-City made any difference.
Now, banking is pretty different nowadays, I can only speak to the early 90s. At that time, there was a difference and it was easy to determine.
In general though, small stores are wary of accepting checks from out-of-towners because they are hard to find when their check bounces, so there’s a much greater risk of loss to them. I think most stores who have this concern just look at the address printed on the check. Not rocket surgery,
There was a requirement in the late 1980s that all checks had to clear within three business days. The law required the “do not write below this line” marking on the back of a check to help the banks process them.
Prior to that, banks had various rules as to how long it took to process checks. It had nothing to do with out-of-state or in-state (other than that being a convenient way of categorizing them) – it once took several weeks for an in-state check to clear (the bank was about 250 miles away, but still in New York State). Banks took their time clearing checks in order to take advantage of the float – they’d have access to the funds before the recipient did.
The law standardized the time a bank could hold a check. The actual infrastructure to do it was in place before the law was passed and checks were routinely clearing in three days; banks just kept the money after it was available.
Further back, there was no way to see if a check was valid (there were even “counter checks,” where someone could grab a blank check for, enter their bank and account number, and have the merchant accept it, though I doubt they continued on past WWII for obvious reasons). One drawn on a local bank could be checked (back in the 70s, we had to call the bank to confirm if a check was good), but one drawn on a bank 500 miles away could not be checked easily (long distance phone calls were expensive and would have easily eaten into any profit for the amount of the check).
Banks had the ability to wait to hear from the originating bank – they just held on to the money and removed it from the account if the check bounced. Merchants did not, and often refused to take checks not drawn on the local bank.
Teller ca. 2006. The only difference was in the hold time. The computer decided the time although I believe it could’ve been overridden. They are not inherently more suspicious, although the time to receive the funds may increase. Calling the issuer was normally only done if it was drawn on our bank, or a cashier’s/official check.
Fuzzy memory: isn’t there one town, IIRC in the upper Midwest, that issues a bunch of checks (refund/rebates?) I read an explanation about why they do that, probably on here.
Counter checks were still common in East Texas in the early 1960s. Every supermarket checkout had a pad of check blanks. You filled in the name of your bank and your account number.
Not really. I was laid off last year, but my job the last 20 years was check processing. When I started in the 90s, we collected the checks in from tellers, sorted them on big machines used the magnetic ink encoded lines on the bottom, and sent them to banks, Federal Reserves, and clearing houses which trucked or flew them all over the country. Depositors didn’t get access to the money until we were sure the check cleared, which could take days, so they hated taking them.
About 3 years ago, we added branch capture (and we were among the last). Now the tellers transmit the check images straight from the branch to the mainframe, and all of us that sorted and processed the checks are gone. We had 700 branches across 3 states and the whole operation is handled by about 20 people in Wisconsin now. The Fed closed all but one of their check centers, teh clearing houses and courier services went under. The 20 people in Wisconsin expect their jobs will go to India fairly soon, as you could do the job from anywhere.
There might be some old-timers that still worry about out-of-state checks but it now takes no longer than a local check. The check images arrive at the bank of origin within hours, local or across country.