What Does Postdated Mean?
A postdated check or draft will display a future date on it. A check user will often write this in to specify that they do not want to withdraw the amount of the check until the date specified. (For example, if Mike writes a check on the 14th of January, but postdates it for the 28th, the bank will not cash the check for another two weeks.)
Article 3, Section 113 of the Uniform Commercial Code (UCC) outlines the rules for postdated checks. Adopted by nearly all states in the U.S., the Uniform Commercial Code is a standard set of business laws to regulate financial contracts. The UCC better enables lenders to loan money, secured by a borrower's personal property.
Postdated Checks and Payday Loans
Customers who take out payday loans frequently use postdated checks, which most banks will honor.
A payday loan is a form of short-term borrowing, which many regard as very risky. In a payday loan, an individual borrows a small amount (usually $100 to $1,500) at a high rate of interest. (For example, $17.50 per $100 for seven days can translates to a rate of more than 900% on an annualized basis.)
A payday borrower will typically write a post-dated personal check in the amount they wish to borrow, plus a fee, in exchange for cash. The lender, who initially delivered the cash to the borrower, will cash the borrower’s check on the agreed-upon date. This usually occurs on the borrower's next payday.
Most borrowers using payday loans have poor credit and low incomes. They may not have access to credit cards, forcing them to use the services of a local or regional payday loan company. To add further risk, payday loans can be rolled over for additional finance charges.
Many know payday loans as cash advance loans, check advance loans, post-dated check loans, deferred deposit check loans, and/or quick cash loans.
Additional Risks Related to Postdated Checks
Since a time lag exists between when a person writes a postdated check and when a banker cashes it, sensitive information can remain exposed and vulnerable for days, weeks, or even a month. The opportunity for identity theft is high. Identity theft occurs when someone obtains personal or financial information of another person in order to assume that person's identity to make transactions or purchases.