The same goes for the drafts that you are speaking of. The bank has an agreement with the maker to cash the drafts for the customer, an “accommodation”, there may actually be funds on deposit, the bank may simple be holding money to cover the drafts, or a line of credit, whatever, it is up to them. The end result is that they either do or don’t pay the drafts depending upon funds available and their agreement, and they charge a serious handling fee for doing it, which is why they do it in the first place.
webhick wrote:NH Federal Credit Union still calls your accounts "Share Draft Checking" and "Share Draft Savings."Prof wrote:At one time, when all credit unions started allowing checking accounts, the accounts were actually draft accounts, and the checks were not "drawn" on a bank but were drafts on the credit union which were paid thru a bank. The statutes and rules governing credit union activities were ultimately changed.
Which is partly due to habit and partly due to CU’s still being not quite fish nor fowl. Your account is based on you being a shareholder of the CU, and thus your equity, your share, is what the account is based on.
As Prof noted, in the beginning share drafts had to be drawn on an outside bank to be paid, then the CU’s got their own clearing system, and finally they turned it all over to the FED and quit messing around.
At this point the VISA and MC networks have gotten into the gift card business and have pretty well frozen out everything else. It is a lot cheaper to do all that electronically, cuts down on the paperwork, and if you don’t use it after a certain amount of time it defaults back to the issuers as an added bonus, along with all the money they get to sit on and make interest on before it is actually spent.