[timerol]

If I write you a $500 check and you accept it for $500 cash (or $500 of goods), you are extending me credit. You don't actually know that my account has the $500 until you cash the check. Someone has to pay that $500, even if I only have $100 in my account. And if I read the article right, the bank is legally required to take the loss.

[nradov]

No, banks aren't required to honor bad checks. They reject checks all the time for insufficient funds (bouncing). Some banks offer overdraft protection to checking account holders so that checks won't bounce (within some limit) but that's a separate feature.

[rkeene2]

A bit off-topic from the original thread, but if you use a Debit card (only validated on the Visa network) it's possible for a merchant to issue an "Advice" without any kind of Authorization (or even after a failed Authorization) in which they will debit your account even if you lack the funds.

Your only option there (as a banking provider) is to debit the account (even if it causes the balance to go negative) or eat the loss, and then manually dispute the charge.

It's not (yet) clear to me who ends up responsible for this -- but I suspect it's the bank side.

[lxgr]

That's possible on most payment card networks that have their historical roots in credit or "dual message" processing.

Historically, the default assumption was that a credit card was always good for payment; the issuer took the credit risk for the cases where that was not the case. Ubiquitous electronic/real-time authorizations (a concept also known as "zero floor limit") have changed that default assumption and liability, but are a relatively new feature for credit cards.

Since debit cards in the US usually feature at least one international "credit" scheme/brand (credit in the historical and processing sense, not in terms of actually being funded that way), there can accordingly also be force-posts.

The issuer can trivially charge back any such charge in case of insufficient funds, though, just like they can with checks.

This is mostly true for credit cards as well, by the way! For historical reasons, some merchants (like hotels or car rental agencies) treat the two differently, but there is no formal basis for the distinction anymore. There is still a practical difference though: Opening and maintaining a credit card usually requires having a non-disastrous credit score; the fact that somebody can present one that still allows authorizations by the bank to go through can therefore serve as a weak proxy for that customer's credit.

tl;dr: The merchant (or their bank) is almost always liable for this, not the issuing bank, with very few exceptions.

[rkeene2]

We asked our network representative and they said we could not automatically dispute these transactions, so because of this we have to add overdraft fees to our product which otherwise never allows your balance to go negative.