Claim: Customer clears installment loan early by sending the last coupon in the payment book with his first payment.
Origins: Another of the artifacts of "old-time" banking which is slowly disappearing in the era of automatic payments and electronic fund transfers is the book of payment coupons given out by banks with installment loans. Typically, when a customer borrowed money from a bank (for a new car purchase, for example), he would be given a book of perforated coupons containing one
coupon for each month of the loan's term, each coupon bearing a payment date and amount due. Rather than mailing out statements every month to remind their loan customers that payments were due, the banks left it up to their customers to detach the appropriate coupons from their payment books and mail them in it along with their checks. When a customer mailed in the last coupon in his book, that indicated the loan had been paid in full.
Payment coupons are also machine-readable cards used in conjunction with computers to keep track of loans by automated means. It was probably inevitable that a few mischievous customers would try to see if they could "fool" their banks' computers into closing out their loans early by sending in the last payment coupons from their books prematurely (perhaps even with their very first payments), as in this example:
[A] young man who, obviously knowing something about the ways of computers, applied for and received a twelve-month installment loan from a New York bank. On receiving from the bank, together with the loan, the book of computer-coded coupons he was supposed to send with his monthly payments, he tore out the last payment coupon in the book instead of the first and sent it in to the bank along with one month's payment. He then received a computer-generated letter from the bank thanking him effectively for paying off his loan so promptly and assuring him of his excellent credit standing . . . The bank involved has since fixed that little programming oversight, and the young man — who claimed he had simply made a mistake — was not prosecuted.1
Even in this anecdote the perpetrator doesn't get away with his ruse, and there's no reason to expect anyone ever did. The same machine-readable information was generally encoded on each page of a payment book, so the order in which the coupons were returned by the borrower made no difference. The printed due dates on each coupon were for the customer's convenience, not the computer's; the computer still had to independently keep track of due dates and monies owed in order to flag missed payments. What signaled the computer that a loan had been paid in full was not the receipt of the last payment coupon in the book, but the outstanding balance's dropping to zero. Even if a particular bank coded their payment books so that, as described above, receipt of the last coupon triggered a "thank you for paying off your loan" letter, the borrower would still show an outstanding balance that would be caught by standard auditing procedures.
Last updated: 15 April 2011
- 1. Whiteside, Thomas. Computer Capers.
- New York: Mentor, 1978. ISBN 0-451-62173-5 (pp. 26-27).