Bulletin: FL000043

Dear Associates:

The Insurance Department regulations under the "good funds" rule allow that you accept certain types of checks but you may not accept drafts. The generally accepted distinction between the two is that a draft has to be approved before it is paid whereas a check is an unconditional promise to pay. You may disburse on "good funds" even though they have not actually cleared as in "collected".

From time to time some mortgage lender will decide that it wants to use drafts. This means that the loan is not actually funded at the time you receive your package with accompanying draft but when the draft reaches the bank, it may wait for a day or several days or longer before there are sufficient funds to clear. This obviously can create a disaster in your office if you have relied upon that instrument and have disbursed.

In a memorandum dated June 15, 1994, copy enclosed, the Insurance Department has restated the regulation to remind everyone that drafts may not be honored until they are cleared and only then is a draft "good" funds. The memorandum makes it clear that the Department is prepared to take action against violators of this rule. It is necessary that you comply with this rule and if you are aware of any violations by others, they should be brought to the attention of the Insurance Department immediately.