Check guarantee companies are not insurance companies, though they
operate like one, and thus are not regulated in such ways.
Check guarantee is a service based on contract law where the service
assumes collections risk should the checks be returned.
Then the next question is how the customer makes sure that the service
has the reserves necessary to pay its claims, and this is where due
diligence becomes very important.
Testimonials from previous and current users, bank references, and
financial information from the company may help determine whether its
reserves are adequate.
Please read about check guarantee service is more detail at Credit Today:
Other Legal Issues:
In its operation, the check guarantee service is usually involved with
check truncation (the conversion of a check to an electronic debit or
image of the check by someone in the payment system other then the
paying bank) and such, which means the transactions may be governed by
check law (UCC, Reg CC and Clearing house rules) or by electronic
banking law (Electronic Fund Transfer Act).
The following legal updates relevant to check guarantee system has
been posted on OfficeTeller:
-> President Bush has signed into law legislation (H.R. 1474) that
will give substitute checks the same legal validity as the original
paper checks. The Check 21 bill is intended to reduce the check
payment system's dependence on physical transportation networks, and
streamline the collection and return process. The implementation date
will be October 28, 2004.
-> The goal of the Check Truncation Act (CTA) legislation is to
increase efficiency of the nation's payment system by removing certain
legal impediments to check truncation so that banks would be able to
easily present and return checks electronically. A new instrument
called a "substitute check" created from an electronic check image
would be the legal equivalent of the original check and could be
processed by receiving banks just as original paper checks are.
-> Under the Banking Rules (NACHA Operating Rules) Consumer checks can
be converted into electronic payments.
I hope this has helped and if you would like clarification on any part
of the answer, please feel free to ask for one.
Request for Answer Clarification by
03 Jul 2006 03:16 PDT
Sorry I didn't respond earlier. Wasn't able to post a reply. Let me
try this again.
I understand that they like all companies are based on contract law,
however, it could be argued that what they provide is an insurance so
they must in some way be regulated as such. Lets assume for example
the company doesn't do as it's contract states, what are the fall
backs. Also, there must be some body that regulates these companies,
especially in strict states like New York. Lets assume any jo smo
started a check guarantee company, they may not be able to make good
on the claims. That being the case, what's to stop anyone from
starting a check guarantee company.