What is an IOU?
IOUs are “Registered Warrants.” A registered warrant is a piece of paper issued by the State of California, with a promise to pay the bearer the amount imprinted thereon within one year of the date of issuance. Interest accumulates at the rate determined by the Pooled Money Investment Account. Simply put, the term “IOU” is more easily understood in the common vernacular than is “registered warrant.” When an IOU is issued, it is not cash but a promise to pay at some point in the future. In the past, financial institutions have honored IOUs as cash, holding them until the situation is resolved and then redeeming them for their cash value plus interest. However, even if a financial institution agrees to accept and honor state IOUs, they cannot be issued electronically like normal state payments such as “direct deposit” of payrolls. Furthermore, advancements in the technology of check processing and fraud abatement programs make registered warrants more difficult and expensive to process.
Many financial transactions are so routine and informal that a legal contract would seem like overkill. Instead, a number of people prefer to use a less complicated method called an IOU. An IOU, which can be in written or verbal form, is an informal acknowledgement of a small debt, usually between friends, co-workers or family members. An employee who borrows some change from a petty cash fund, for example, may write an IOU to account for the money. The name IOU comes from the literal phonetic spelling of “I Owe You.” When writing out a formal note acknowledging a debt, the debtor often found it much easier to abbreviate “I owe you…” to IOU. Even though the origin of the abbreviation is English, other countries also recognize the meaning behind an informal IOU. An IOU is not the same as a formal promissory note or other financial contract. There are rarely any witnesses to the drafting of an IOU, and the repayment obligations may or may not be spelled out directly. Enforcing an infor
