You do not have the right to stop a bank cheque at will, Neville Melville the Banking Adjudicator says, so it is imperative that you check that you get what you are paying for, when you pay with a bank cheque.
Melville has given the banks recommendations on how to deal with bank cheques after several disputes were brought to his attention, showing that the rules regarding bank cheques are misleading and vague.
Melville says that 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.
This misconception is serious and has the potential to cost the banking industry and its customers dearly if left unresolved.
People tend to use bank cheques in preference to personal cheques where suppliers (of goods or services) require an element of certainty that they will receive payment.
On the whole, bank cheques are intended to be used to pay for large and expensive items, such as cars and furniture, or for sizeable transactions such as the purchase of a business, Melville says.
A bank cheque resembles an ordinary cheque, but is issued by the bank at your request. With such a cheque, your bank agrees to pay a third party from its own funds and not yours.
Although more reliable and secure than personal cheques, bank cheques are not 100 percent safe: they can be forged or stolen.
The problem identified by the adjudicator's office is that a bank will sometimes allow 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. Additional complications arise when payment is stopped for any reason under the sun, he says.
Since the South African courts have not yet considered whether the person who requests a bank cheque is entitled to stop payment, the banking adjudicator has consulted Australian and American legal precedent to inform its thinking.
In an advisory bulletin, issued to all local banks recently, Melville suggests the following steps to safeguard the interests of all parties:
- The person requesting a bank cheque must be informed that it will not be stopped at will. Only in special circumstances will this be permitted. These circumstances are: if the cheque is a forgery; if it contains material alterations; if it is lost or stolen; or if there is a court order not to honour the cheque.
- Merchants are advised that they should not treat bank cheques as cash. They are encouraged to contact the bank issuing the cheque to confirm that it will be paid.
- If there is reason to withhold payment, the person requesting the bank cheque must provide personal indemnity, so that the bank is not held liable for any claims arising from it stopping the cheque.
- Consumers requesting a bank cheque must be made aware that if they are dissatisfied with goods or services provided by an individual or organisation whom they have paid with a bank cheque, the only remedy is to take legal action against such an individual or entity, Melville says.
With cheque fraud prevalent in South Africa, Melville says he hopes that banks will take his advice.
"We don't want to sit on the sidelines, offering counsel after the event. If we can prevent something in the first place, something that causes anxiety, concern and stress, that is where we want to be," the Banking Adjudicator says.