When Graham Watt died two years ago, his son, Rep. Mel Watt, settled the estate.

But the North Carolina Democrat's father-a retiree living on a small, fixed income-continued to receive credit solicitations. Many declared him pre-approved for instant cash.

Eventually Rep. Watt was contacted by a creditor who wanted him to cover a $5,000 "live check" his father had signed and deposited less than a month before he was buried.

Though Rep. Watt's father might have considered the check an easy avenue to extra cash, the checks are actually fixed-term personal loans with interest rates as high as 25%. And that's why Rep. Watt appeared at a recent news conference to support legislation that would prohibit companies from mailing so-called live checks to consumers.

"It's just inordinately difficult for some people to take a live check in their hands and say, 'I'm going to tear this up,'" Rep. Watt said. "The notion that live checks were being sent to my father, who I know could not repay these things, was interesting to me."

Introduced this summer by Rep. John LaFalce, D-N.Y., the bill would amend the Truth-in-Lending Act to prohibit companies from extending credit through solicitations involving checks or other negotiable instruments unless a consumer has requested credit.

Consumers would not have to repay debt arising from live check solicitation, and their credit ratings could not be tarnished for nonpayment.

President Clinton in May asked Congress to ban such solicitations, saying consumers should not have to shred their mail to avoid potential liabilities and credit hassles.

Even with White House support, the legislation has a long road to enactment. Still, the experiences of lawmakers like Rep. Watt have produced banking laws in the past. Long hold times on their checks led lawmakers in 1987 to enact the Expedited Funds Availability Act.

Letters from Rep. LaFalce's constituents tell the stories of a young man in his 20s and an elderly lady receiving live checks for amounts well above their annual incomes. Rep. LaFalce claims lenders are targeting lower- income households that are already in debt, especially young families and the elderly.

"No effort was made to determine if the recipients had sufficient income to make monthly payments," he said.

But Jim Schepker, a spokesman for Fleet Financial Group in Boston, defended live checks as a valuable product that provides consumers with ready access to cash and simple terms. Fleet usually does two to three live check mailings a year, he said, offering loans at rates of 12.9% to 15.9%.

Fleet only solicits consumers who have active credit, have not filed for personal bankruptcy, and are deemed creditworthy on the basis of credit ratings made by independent companies, according to Mr. Schepker.

"It's going to deserving consumers," he said. "We do not discriminate on the basis of age, or income for that matter."

In September 1997 the American Financial Services Association drew up voluntary guidelines for lenders designed to curb consumer confusion and limit potential liability. The trade group's guidelines recommend including a statement on the back of the check explaining that a signature activates a loan agreement. Checks should expire after six months, the association said.

But Rep. LaFalce said many of these measures have disappeared from solicitations this year.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.