My own personal experience trying to get bank drafts honored at North Fork Bank, Chase Bank, and others has led to the unfortunate conclusion that several consumer banks in the United States are falsely advertising that they offer checking accounts. As defined by Article 3 of the Uniform Commercial Code, a check is:

(i) a draft, other than a documentary draft, payable on demand and drawn on a bank or (ii) a cashier’s check or teller’s check. An instrument may be a check even though it is described on its face by another term, such as “money order.”

Pay particular attention to the words “payable on demand". North Fork, Chase, and others, however, will not honor any check presented to them unless the person making the presentment also holds an account at their bank. Note that the definition of a “check” does not allow for any such limitation. The instruments these and other such banks offer their account holders, therefore, may be negotiable instruments, but they are not checks. By publicly soliciting consumers for checking account products, they are guilty of false advertising.

All American consumers would do well to review the terms of the negotiable instruments their banks are referring to as “checks". If they will not honor the check when presentment is made by a “person entitled to enforce” without further limitations, then the bank is not providing a true checking account.

Why is this important? Apart from false advertising, which is bad enough, it encourages banks not to hold sufficient actual currency to back all of their accounts. If they only have to give real cash to existing customers, and no one else, then what’s to stop them from keeping little cash on hand at all? You must remember that wire transfers from one bank to another only represent money. American currency is not, itself, electronic. It is dollars and cents. And American banks should not be allowed to substitute the representation of money for the real thing without fully disclosing that to consumers. A “check” is an order to pay real money. To offer anything else and call it a check is a dangerous act of fraud.

I recently learned that in the State of New York, a convenience store needs a license to sell beer and wine. This isn’t required in many states, but there’s more. It’s a different license than what’s required for selling liquor. And a liquor store can’t sell lime juice. So, if someone wants to make gin & tonics at home, they’re forced to go first to a liquor store for the gin, and then to a convenience store or grocery store for the lime juice.

Apart from this bureaucratic crap being an inconvenience to customers, it puts a severe limit on small business owners as well. If someone wants to buy liquor to make any number of drinks that require something other than just liquor, they have to go to two separate merchants– even though only one of them is actually in the business of selling that person what they really want to buy. And that merchant is losing lots of money in potential sales of products specifically needed for consuming certain types of liquor-based products.