2-4-6 .... UK Cheque Clearing rules changing

[Saracen]

After an investigation and report by the Office of Fair Trading (OFT), the rules under which UK banks clear cheques are changing. For major banks, this comes into effect on Friday and for other banks, next March.

But what's changed? Three things, those being the maximum permissible time before interest must be paid, the maximum time before you can draw against the cheque, and the maximum time before the money is guaranteed to be safe and not subject to clawback if the cheque was stolen or fraudulent.

They are now :-

- 2 days - banks must credit interest after two days (from date of deposit). Some banks already beat this anyway, but it's now becoming mandatory.

- 4 days - four days after paying in, you can draw against the money deposited. Again, some banks already beat this.

- 6 days - if the cheque has not been detected as fraudulent or stone, and stopped by the banks within six days of you depositing the cheque, THEY take the loss if it turns out to be dodgy, not the customer.


It's probably that last point that's of most interest. Currently, a cheque can be found to be dodgy months after being paid in and the banks simply take the money back from the depositer's account, or demand that they pay it back in. Suppose you sell your car, pay the cheque in and let it "clear", then let the buyer take the car. Three months later the bank tell you the cheque was stolen and demand reimbursement. That will no longer be able to happen. So if sellers hold onto goods for 6 days after paying in the cheque, they can be sure that they aren't liable if it then turns out to be fraudulent.

Of course, cheques are becoming less and less popular as a method of payment, so it may not bother a lot of people, though some may see this as a reason for taking cheque over, for instance, a certain online auction house's in-house payment system.

And, of course, sellers may deter quite legitimate buyers if they decline to send good until the 6 day period has passed. That's a choice and risk the seller will have to face.

But at long last, and in my opinion, hugely overdue, the banks will have to either detect fraudulent cheques fairly quickly, or face the consequences themselves and not just foist the damage onto the consumer.


One more point. You can withdraw against a cheque after four days but it isn't guaranteed for six days. If you pay in on Monday, withdraw the following Monday (five days) and the banks still find it fraudulent (up to the Tuesday), YOU will still be liable and have to pay the money back in.


There's further details of all this on the OFT website, banking organisations like APACS and just about every financial website, and TV programs like Working Lunch.

[Fabula]

Thanks for the update.

[Lucio]

This'd help explain why I've started seeing signs that cheques aren't an accepted form of payment.

[dave87]

Several major retailers don't accept them now - not even with a cheque guarantee card. 'spose its cause Chip and Pin is more likely to protect them financially.

[wombar]

About time too I say, thanks for letting us know. Will certainly make selling on eBay a little less hit and miss if you don't want to use PP, especially for high value items.

[Saracen]

This'd help explain why I've started seeing signs that cheques aren't an accepted form of payment.

I think that's more to do with the take-up of other forms of payment. Cheques, as a method, see about half the daily volume that they did just a few years ago (11m a day down to under 5m a day, IIRC) and they're a lot less popular, not least with us, the general public. There's several reasons, including sheer convenience of card payments, and the hassle of handling cheques and cheque books. If you've ever seen a supermarket cash office handling end of day routines, it's clear why they like card payments over cheque and cash. Shifting (and securing) paper is a substantial headache.

But I agree with the point, and my first reaction was, I must admit, how banks will handle this. For instance, will cheque services start to get withdrawn completely on some accounts, or will cheque handling charges go up? I wouldn't mind betting that if banks start getting hit in the profit margins, they'll find some way of either minimising that cost or passing it on indirectly.

But I'd also say that so would I if I were a bank. And it's perhaps not unreasonable that cheque charges increase if the cost of handling cheques increases. Personally, I don't use a huge number of cheques anyway and I'd MUCH rather pay a nominal extra fee on every one I use than risk holding a huge loss if, for instance, a cheque I'm given proves to be dodgy.

But I can't see any other alternative than charges going up unless the banks manage to make systemic changes that lets them identify fraudulent cheques much more quickly. Why, after all, can it take months to discover that a cheque is fraudulent?

It also strike me that the other side of the coin is that we may all end up having to keep a MUCH closer watch on our bank accounts than many people have been doing. If you suffer a fraudulent cheque on your account, and money goes out that you didn't authorise, you'd expect the bank to put it back for you .... or I certainly would, anyway. But if you don't notice or report it for 6 months because you weren't checking your statements, is it fair to expect the bank to pick up the tab for the lackadaisical standards of customers? Are we going to be held to higher standards too? I suspect that sort of thing is coming .... and if the banks lose on that 'unfair charges' test case, are "free" accounts in serious jeopardy?

[moogle]

nice to know this. i suppose less people will get scammed of their items when selling.

[noTHINGface]

... I can't even remember the last time I paid for something using a cheque. Still, nice to see that the banks are getting pulled up on this, about time too.

[mycarsavw]

There's further details of all this on the OFT website, banking organisations like APACS and just about every financial website, and TV programs like Working Lunch.

Thanks Keith <chuckles to himself and watches the ban stick hovering>

[Lucio]

if the banks lose on that 'unfair charges' test case, are "free" accounts in serious jeopardy?

I guess it's too much to ask that they overhaul the entire banking and payment system to a non-profit model?

[Saracen]

I guess it's too much to ask that they overhaul the entire banking and payment system to a non-profit model?

We could always nationalise it and let government run it .... but they'd only lose it in the post.

[dave87]

We could always nationalise it and let government run it .... but they'd only lose it in the post.

That has just made it into my sig - what a quote

[UltraMagnus]

We could always nationalise it and let government run it .... but they'd only lose it in the post.

lol

in all seriousness, i do believe that nationalisation would be the best method, having people that only care about how much money THEY make looking after your money never made sense to me.

*withdraws his savings and buys gold with them*

[Saracen]

It might have consequences that go a bit further than you intend, though, Ultra.

The banking system runs on confidence and that's in short-enough supply as it is at the moment. Having to nationalise NR would be tantamount to admitting there's a huge problem with the system, and that could disrupt and destabilise the whole system, which could have knock-on effects for the whole economy.

I'd say that, outside of reasons of political dogma, nationalising NR right now is probably about the worst available option short of seeing it crash and burn.

[greenalien]

One of the biggest scams in recent years has been the 'overpayment with cashback' cheque fraud. The way this works is that you advertise something for sale for, say, £2000. Someone offers to buy it for £3000 provided a) they can pay by cheque and b) you give them £500 cash back. There are a variety of these scams about with different 'cover stories' to make the proposal sound reasonable, but the bottom line is that the cheque eventually bounces - could be forged or stolen - and the bank demands repayment. These scams often involve high-value goods and foreign buyers.
The interesting thing will be to see how much cheque clearance gets speeded up once the banks realise that they are now liable for any losses from this type of scam!

[Gordy]

Interesting news that, I take predominantly cheque payments from my clients as I find it easier to track and managed. Touch wood I've never had one bounce, but I'm sure its just a matter or time. I'm glad that after 6days I can be assured its fine.

On the 6th day if it bounces do they have to contact you by phone or letter do you know?