How to prevent the misuse of your cheques

Introduction

While the use of cheques is becoming less frequent as a result of the computerisation of the banking industry, there are still occasions when their use is preferable – for example, private sales. All the banks have their own regulations and procedures for the processing of cheques, but most will adhere to the Code of Banking Practice. The law relating to cheques is found in the BILLS OF EXCHANGE ACT 1908 and the CHEQUES ACT 1960.

A cheque is simply an authorisation and direction from you ("the drawer") to your bank to make the payment indicated on the cheque, on demand to the identified "drawee", and to debit your account with the amount to be paid out. It is general practice that a cheque must be presented within six months for the drawee to be able to receive the funds.

There are a number of safeguards you can use in writing your cheques to ensure that the money goes to the person you intend it to go to.

Crossing cheques

So that you can trace whose account the money is paid into, you should make a "general crossing" – that is, two parallel lines (with or without the words "Not negotiable" between the lines) across the top-left corner of the cheque. This means that the cheque cannot be cashed over the counter but must be paid into an account. Therefore if the cheque is lost or stolen you will be able to identify whose account it has been paid into.

The best protection exists if you name the particular recipient or drawee and write "non-transferrable" or "account payee only" between the parallel crossing. This means that the cheque cannot be endorsed and passed on to another person, but must be banked in the drawee's account.

Cheques made out to "cash"

The person to whom you give the cheque will have no protection if you make the cheque out for "cash", as the cheque will be paid out to whomever has possession of it.

Bounced cheques

It is important that you check that you have sufficient funds in your account to cover the amount paid out by the cheque. The bank is obligated to pay in full, and therefore if your balance does not cover the entire amount, the cheque will bounce; this means that the drawee will not be paid and you may be required to pay a fee to the bank.

What if the drawee loses the cheque?

If a drawee loses a cheque that you have written to pay a debt or make a purchase, and you subsequently discover that the cheque has been presented and paid out to somebody else, you are no longer liable for the debt or the cost of the purchase.

How do I put a stop on a cheque?

A cheque is a legal authority, and therefore you must go through the correct procedures if for some reason you wish to put a stop on it. You should contact the bank and inform them of your account details, the date, the amount, and the drawee of the cheque. If this is done over the phone, you will probably need to go in to your branch in person to fill out the appropriate forms and pay a fee.

What about forged or altered cheques?

If you discover that a cheque has been altered to state a larger amount or that your signature has been forged, you should notify the bank as soon as possible. Where the amount was altered you will not be responsible for the additional amount unless you were negligent in writing out the cheque; in the case of a forged signature you will not be liable for the amount of the cheque unless you were careless about where you kept your chequebook.

What if I have a complaint about the bank?

If you believe that your bank has acted in bad faith or has not fulfilled its duties adequately, you should first make a complaint to the bank itself, which is required under the Code of Banking Practice to provide customers with a free complaints procedure. If you are not satisfied with the outcome of the bank's internal complaints procedure, you should complain to the Banking Ombudsman (see How to complain to the Banking Ombudsman).

Cautionary notes
  • If you have a complaint about the bank's services in relation to your use of your cheque account, you may also wish to consult a lawyer, who will be able to advise you of your rights and the possible remedies open to you.


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