Traveler's Letter of Credit Law and Legal Definition

Traveler’s letter of credit refers to a letter of credit that is addressed to a correspondent bank, from which one can draw credit by identifying oneself as the person in whose favor the credit is drawn. A letter of credit is used by a person traveling abroad, by which the issuing bank authorizes payment of funds to the holder in the local currency by a local bank. The holder signs a check on the issuing bank, and the local bank forwards it to the issuing bank for its credit. The issuing of a traveler's letter of credit may be regarded as a representation that the correspondent bank has in its possession funds with which to make good its letter of credit. It may be said that the applicant for a traveler's letter of credit ordinarily deposits money with the issuing bank, to be paid to the beneficiary of the credit; or if the applicant does not deposit actual money, s/he arranges for an equivalent which amounts to the same thing. [Harkness v. Chase Nat'l Bank, 155 Misc. 784 (N.Y. City Ct. 1935)].