Adjudicator recommends clarity on cheque rules

Business Day, April 22 2003
Business Day Reporter

The Banking Adjudicator's office has recommended the adoption of a new policy governing the issue of bank cheques after several disputes proved the rules to be misleading and vague.

"While members of the public and business community are inclined to treat bank cheques as the equivalent of cash or as a guarantee of payment, the banks themselves do not, and have been known to stop payment on bank cheques in some instances," said banking adjudicator Neville Melville.

"This misconception is serious and has the potential to cost the banking industry and its customers dearly if left unresolved."

A bank cheque is a document that resembles an ordinary cheque in appearance, but does not have the equivalent legal characteristics.

With a bank cheque, a bank agrees to pay a third party from its own funds - and not those of the person requesting the cheque.

"People use bank cheques in preference to personal cheques where suppliers require a element of certainly that they will receive payment," Melville said.

"On the whole," he said, "bank cheques are intended for the payment of large and expensive items, like cars and furniture, or for sizeable transaction like the purchase of a business."

While more reliable and secure than personal cheques, bank cheques are not 100% safe: they can be forged or stolen, Melville said.

He said the problem would sometimes permit the person, at whose request the cheque was issued, to stop payment due to an alleged dispute with the third party (supplier) for whom payment was originally intended.

"Complications arise when payment is stopped for any reason."