California IOU holders may turn to check cashers

"Putting a deadline on there might encourage the legislature to act," Mills said, adding that the cut-off may also have been set because processing the IOUs imposes "operations costs" offsetting their hefty interest rate.

"Banks even beyond July 10 are willing to step forward to help their customers. They just may not be willing to accept IOUs. They may extend them a line of credit or do bridge loans," Mills added.

By contrast, credit unions will accept the IOUs after Friday, which would require non-members to join local credit unions to cash the warrants, said Penrod,

Addressing speculation of a secondary market emerging for the warrants, Penrod said that would be unlikely. Even so, California Treasurer Bill Lockyer's office said on Monday it would redeem IOUs sold through eBay Inc, Craigslist or other means, if accompanied by a notarized bill of sale signed by their recipient.

Some have wondered how the IOUs will be regulated in the secondary market. If they are deemed securities by the Securities and Exchange Commission, then those buying and selling them could be subject to federal law on broker-dealers. Currently, SEC officials are analyzing the issues involved.

Penrod said the banking industry will more likely face competition for California's IOU business from storefronts that cash checks for a fee. "You'd add the fee into the 3.75 percent for a less-than-one-year note, which is essentially what it is, and that's a great rate," Penrod said.

(additional reporting by Lisa Lambert in Washington)