10 Financial Urban Legends

Writing checks in red ink won't prolong the float, and yes, you really do have to pay income tax. Here's a look at these and other lingering myths.

By Bankrate.com

Every now and then you read about a retiree snookered in a Nigerian bank scam, or some nitwit marched off to jail while still insisting the income tax is illegal, and you just shake your head and wonder who could believe that guff.

Unfortunately, a lot of people.

Just ask Barbara Mikkelson, co-founder and researcher at Snopes.com, a Web site dedicated to the destruction of urban myths. Mikkelson spends a lot of time getting to the bottom of financial tall tales that she encounters.

So does Catherine Williams, vice president of financial literacy at the nonprofit credit counseling agency, Money Management International. Williams has a slew of oddball beliefs folks have shared with her during the company's educational seminars.

"We get into situations where we can't pay our bills, and we become like 3-year-olds: the 'dog ate my homework' routine," she says of Americans' willingness to latch onto urban legends. "We want to believe there is some excuse, and something will bail us out of still owing the money."

Legends and tall tales

It doesn't help that rooted in many myths is the tiniest grain of reality, she adds. The trick is extracting that truth. Check out this collection of legends:

• Myth No. 1: You can float a check longer if you write in red ink. The theory is that a bank's equipment can't scan red ink, so it takes longer to process the check.

Poppycock, says Williams. The color of the ink makes no difference.

"However, gel ink doesn't image well, which makes it difficult to verify the signature and the check," says Tracey Mills, of the American Bankers Association. "As a result, the paying bank cannot authorize the transaction, and chances are the check will be returned to the creditor or merchant."

Then, instead of getting some extra time on the float, you are socked with a returned-check fee.

• Myth No. 2: You don't have to pay income tax -- it's illegal. Only foreign income is subject to Uncle Sam's cut, the story runs, and there's a form you can file to exempt yourself. But no one will tell you about it.

The truth is, there is no form.

"I have this flat spot on my forehead because I'm constantly striking it with the palm of my hand," Williams says. "Somebody has way too much time on his hands, usually because he's either done something illegal or he hasn't followed the rules of the game. So he looks for something that might get him off the hook for a period of time."

Sorry, Charlie: You must fill out your IRS forms before April 15.

• Myth No. 3: I'm under 18, so I can't be held accountable for a debt. (Variation: Credit-card debts are wiped out when you turn 19.) Spring-breakers love to use this one to justify running up a cruise or resort-hotel bill on their credit cards.

This one is only partly myth, because it is true that people younger than 18 cannot sign a legally binding contract. So they can't take out a loan or sign a credit-card agreement. "You are legally an infant until you are age 18," Williams says. However, credit-card companies will allow a minor to have a card -- if an adult has co-signed the agreement or added the minor to their account as an authorized user.

So someone will pay -- the adult who signed on the dotted line.

• Myth No. 4: My hotel key card has my credit-card information. The ramification is that you'd better clutch it tightly or a con will decode it and rack up a big bill.

This urban legend has an actual source: the police in Pasadena, Calif. A fraud-detection team had honed in on one such hotel key and notified each other before verifying whether it was standard practice in the industry. It wasn't, but they didn't find out until after the information leaked to the public and spread like wildfire.

The Pasadena Police Department now has devoted a page to this accidental myth at its Web site. It says, "Detectives have contacted several large hotels and computer companies using plastic card key technology and they assure us that personal information, especially credit card information, is not included on their key cards. The one incident referred to appears to be several years old, and with today's newer technology, it would appear that no hotels engage in the practice of storing personal information on key cards."

Luckily, the news has risen only to the annoyance level throughout the hotel industry, says Joe McInerney, president and CEO of the American Hotel and Lodging Association. "It seems to crop up in 18-month cycles. But people are still staying in hotel rooms."

The manufacturers who churn out these magnetic-strip room-key cards employ three embedded and encrypted tracks. Most hoteliers use track three, which contains locked information listing the guest's room number and check in/out dates. The remaining tracks -- if supplied by the hotel's property-management system -- provide additional, limited guest information like a folio number or name to identify guests at point-of-sale terminals located throughout the hotel.

"Worst that ever happens to me is the key stops working promptly at 12:01 and I have to go to the reception desk to get back in my room," McInerney says.

• Myth No. 5: Boycotting a few gasoline brands brings gas prices down. Poor Exxon and Mobil. They often show up as the bad guys in a mass e-mail urging Americans to avoid their pumps on a particular day.

Its easy-to-understand language makes the plea plausible. The trouble lies in the fact it's too simple -- and economics don't work that way. For starters, gasoline is what's known as a fungible commodity -- if one company has an oversupply, it sells it to a competitor. No matter who you buy from, the basic supply numbers remain the same.

Furthermore, prices at all the nonboycotted outlets would rise, thanks to the temporarily limited supply and increased demand, making the original prices look cheap by comparison, according to Snopes.com.

Besides, the industry is too large for a boycott of two companies to make a dent, says Stephen Ciccone, University of New Hampshire assistant professor of finance.

Unsigned credit-card danger

• Myth No. 6: It's better if you don't sign the back of your credit card. Some well-meaning pigeon decided one day this would protect him from identify theft.

Unfortunately, in the real world, it only "protects" you from having the merchant accept your payment at the checkout counter, says Mills. Not to mention that an unsigned card in the hands of fraudsters is much easier to use for unauthorized purchases. They can just sign the card themselves. Then their signature will always match the receipt signature.

• Myth No. 7: You can make a pile of dough by helping a foreigner solve his money problems. "Hello, my name is unpronounceable, and I need to get money out of my country. Will you let me use your bank account?" is the gist of this e-mail plea.

It's called the Nigerian bank scam, and it's among Mikkelson's favorites, mainly because the number of people asking about it is huge. "It is impossible for the average person to figure out what is going on unless they know there is such a thing as a Nigerian scam," she says.

For one, the back-story changes constantly to reflect current events. Expect a new variation every time a foreign leader dies or is deposed. Presently, Yassar Arafat's widow is supposedly seeking help moving his secret bank account out of enemy hands, and the sergeant who found Saddam Hussein's hidden gold wants help keeping it out of insurgent hands.

• Myth No. 8: You can now opt out of having credit bureaus give your information to anyone who asks. Just call (888) 567-8688 and give them the Social Security numbers of everyone in the household in a single call, says the message. But hurry -- you only have 60 days to take advantage of this ability.

The credit-reporting bureaus are working hard to debunk this one, if only to stop people from calling that number. It merely connects you to an operator who can help you opt out of receiving pre-approved credit offers. Keep in mind that if they weren't allowed to give out credit information on you, they wouldn't exist.

The grain of truth lies in the fact that companies are required by law to inform their customers of their privacy policies. (Remember the flood of confusing legalese that showed up in your mailbox from every department store credit card prior to July 1, 2000?) If you don't want them to sell your personal information, you must call them directly -- one by one -- to halt the practice.

• Myth No. 9: You can buy your way out of points on a speeding ticket. If you pay a bit more than your fine actually is, the state will send you a refund check for the difference.

Don't cash it and they can't assess points because the transaction isn't complete.

Hmmm, sounds good -- a way to circumvent rising insurance rates for a mere $5. But when Mikkelson checked into it, she discovered the popular e-mail advice originated in Australia. Maybe it works for Aussies, but Americans aren't so lucky.

• Myth No. 10: Hotel Bibles often have $100 bills tucked into them. Heard the one that Gideons leave $100 bills in their hotel Bibles to reward folks who turn to the Good Book?

Mikkelson rejoiced when she actually discovered such a treasure during her honeymoon -- and found out a few hours later that her new husband was pretending to be God. The only thing Gideons leave behind is the book.