A homeowner in Parkville, a suburb of Baltimore, opened her mail one day to find an unexpected check for $234,368.25 (£176,000) made out to her. That practice is now banned across Maryland under a state law that took effect on 1 October. The legislation, called Senate Bill 582, was signed into law by Maryland Governor Wes Moore in April. Anyone who violates the ban can face a misdemeanor charge and a fine of up to $500 (£375).
It was not a lottery prize or a bank mistake. Instead, it was a tactic used by a potential buyer who wanted to purchase her home without putting it on the open market. The law targets an aggressive type of direct-mail marketing. It makes it illegal to send property owners negotiable financial instruments along with unsolicited offers to buy their homes.
A 1998 investigation by the US Government Accountability Office showed how large the practice had become. The report said Fleet Bank mailed 50,000 live checks during a limited trial in 1995. By March 1998, the bank had sent 5.85 million checks, resulting in about 155,000 individual loans worth $680 million (£510 million). Fleet Bank recorded 68 confirmed cases of fraud involving intercepted checks. Minnesota introduced rules in 1998 that restricted live check mailings unless the recipient had specifically asked for them. North Carolina required clear disclosures in 2001.
The Consumer Financial Protection Bureau responded by issuing updated guidance after direct-mail loan offers increased. The strategy is based on live check financing, a direct-mail lending method that became widely used during the 1990s. Banks and other financial companies mailed active loan checks to consumers who had not applied for them. By depositing the money, recipients agreed to the loan terms, including interest rates and service fees. The fast growth of the practice also created major security risks. Another lender, First Chicago, stopped its live check program completely after suffering financial losses it could not sustain. States began placing limits on the practice around the same time. Despite those measures, the practice later returned.