Cheques
Common problems we see in cases involving cheques
Cheques are not as simple as many Canadians think! At OBSI, we find that people often misunderstand the rules relating to cheques and this can cause them to lose money, fall victim to frauds, and have problems with their financial institution.
What is a cheque?
A cheque is a written promise from one person to pay another. A cheque is a document that instructs the bank to pay a certain amount of money from one account to another.
A cheque is NOT a guarantee you will receive the promised money. For example, the cheque must be properly written and the cheque-writer must have sufficient money in their account to pay the amount promised.
How a cheque is processed
A cheque must be processed or "cleared" by the bank before the money promised by the cheque belongs to you. Even if the money from the cheque has been deposited into your account you may not be entitled to keep it if the cheque doesn't clear.
A bank will clear a cheque if it is properly written, there is enough money in the cheque-writer's account, and if there are no other problems with the cheque (like fraud, duplication, or a stop payment). A depositor cannot keep money promised by a cheque if the cheque does not clear. For example, if you deposit a cheque into your account and it is fraudulent, or there is not enough money in the account of the person who wrote the cheque to you, the bank will reverse the deposit and take the money back.
Many people think that cheques can be cleared quickly - like in 3 or 5 days. Banks have much longer than that - up to 90 days or even longer - to reverse a cheque deposit if it turns out that the cheque-writer does not have the money they promised or that there are other problems with the cheque.
Common problems that can arise with cheques
We see some common misunderstandings and problems related to the use of cheques. These include:
- Various types of cheque fraud that take advantage of the delay between the time a cheque is deposited and the time it clears. For example:
- fraudsters "accidentally" send a cheque for too much money to a victim and then trick the victim into sending back the overpayment. After the victim has sent the fraudster money, the problem with the original cheque is discovered and the original deposit is reversed, and the victim has lost the overpayment amount.
- Early deposits - when a postdated cheque is deposited earlier than expected.
- Late deposits - when a cheque is deposited much later than expected.
- Duplicate deposits - when a cheque is accidentally or intentionally deposited more than once. For example, by electronic deposit and then paper deposit, or multiple times by electronic deposit.
- Stop payment orders on cheques not working.
- Forgery - the altering of words or numbers on a legitimate cheque for dishonest purposes.
Holds on cheques
Banks have the right to put a hold on cheques deposited into your account. A "hold" prevents you from accessing the money promised by the cheque for a set period of time. Banks usually determine the hold period based on how the cheque was deposited and the amount it was for. Generally, the hold period won't exceed four to five days for cheques less than $1,500 and seven to eight days for cheques over $1,500.
When a bank confirms the cheque is valid and there is sufficient money available in the cheque-writer's account, the bank can then determine whether to continue or lift a hold.
Even when a hold is placed, banks must generally make the first $100 available to consumers for withdrawal. It is important to remember, though, that this $100 can still be taken back if the cheque does not clear. Also, the end of a hold does not mean the cheque has cleared - the cheque could still be rejected later. If the cheque is rejected later, the bank will take the money back from the depositor's account.
To learn more about cheques and hold periods, please visit the link below:
When we review disputes about cheques, we consider:
- Consumers are responsible for any cheques deposited into their account. They should act reasonably and use common sense when receiving payments by cheque and depositing cheques. For example, they should:
- only deposit cheques from trusted sources
- be alert to signs of fraud and exercise reasonable caution
- take reasonable steps to protect their cheques, including:
- keeping their cheques and banking information in a safe place
- safely destroying any documents/cheques/statements that may contain personal information
- regularly checking their account online and reviewing their monthly account statements
- review their bank statements regularly and report problems with deposits or withdrawals quickly.
- Banks are responsible for following the payments rules, honouring their agreements, and treating their customers fairly. For example:
- they should act to inform and protect their customers where it is reasonable and possible to do so, though their obligations are limited. For example, if signs of fraud come to the attention of the bank they should act reasonably to inform the consumer of their concerns.
- if the dispute is about a hold, we will consider whether the bank had a valid reason for the hold and if they did it in a fair manner, for example we will consider:
- whether the bank had reason to suspect the cheque was fraudulent
- whether there were sufficient funds available to cover the amount the cheque
- whether the bank followed the appropriate rules for placing a hold.
- Canada's payments rules impose certain timelines that banks have to follow when dealing with one another and reversing payments.
- Canada has laws that protect the rights of people who have received cheques - especially if duplicate cheques have been created and deposited.