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Last Updated: Saturday, 9 October, 2004, 10:51 GMT 11:51 UK
Q&A: Clearing cheques
BBC Radio 4's Money Box programme put some of your questions on cheques to Sandra Quinn of the Association of Payment Clearing Systems.

Why are banks now regularly telling customers that a payment received by cheque will never be guaranteed?

Sandra Quinn writes: This has always been the case, and has always been covered by your banks' terms and conditions.

It is because, if a cheque turns out to be fraudulent or stolen, it is possible that the paying bank will not realise this until after you have received funds, so they have always reserved the right to withdraw it.

However, the reality is that only about 0.5% of the six to seven million cheques that are cleared each day are returned unpaid or bounced.

In the vast majority of cases, the bank will know that it has been returned unpaid on day four or five and it is only very rarely after this time that funds can be re-claimed.

If this happens it is because the cheque has probably been stolen or is fraudulent and the victim has just noticed.

Has anything changed?

Sandra Quinn writes: No, a cheque never has been a legal "guarantee" of payment.

You should never accept a cheque from someone you do not know or trust, or for higher value items.

Is it legal for banks to claw back money from accounts long after a cheque has passed through the clearing process?

Sandra Quinn writes: Yes. This is normally only done where fraud is involved.

There is actually a series of different contracts in place when a cheque is processed, between the payer and receiver of the cheque, the payer and his bank, the receiver and his bank and the two banks.

Does the Bills of Exchange Act come into play here?

Sandra Quinn writes: No.

Under what circumstances might a bank claw back money from a cheque that has passed through the clearing system?

Sandra Quinn writes: When - for whatever reason - a cheque is received back later than the normal process for returning "unpaids" the cheque turns out to have been fraudulent.

In the unlikely event this happens to you we would advise you to speak to your bank, who should be able to explain what has happened and if necessary investigate.

It is not true to say that the bank automatically claws back funds in all cases. Each case will be judged on its own merits.

One of the issues with the rise in fraudulent cheques has been collusion between payer and receiver.

How can I be absolutely sure the money I have received by cheque is mine to spend and will not be taken away?

Sandra Quinn writes: You cannot. But you can call your bank and ask them to confirm when it will be safe to withdraw funds (and our advice is to use this term rather than ask if the cheque has cleared).

If they subsequently take it away from you when they have given clear advice that the funds were yours, you may have grounds to challenge the decision.

In similar cases, the Financial Ombudsman Service has ruled in favour of the customer.

If a person is an unwitting victim of fraud and the bank does not spot the fraud quickly is it fair that the person should be made to pay for the crime and possibly suffer financial hardship?

Sandra Quinn writes: In every fraud there is a victim, and the same principles apply as in other cases.

Take care and ensure that you take obvious steps to avoid being a victim of a scam.

The obvious example is selling a high-value item, such as a car, and we would always advise using other payment methods rather than accepting a cheque in these circumstances where you are unlikely to know the person that you are dealing with.

What is the position if I pay or receive a payment supported by a cheque guarantee card?

Sandra Quinn writes: A cheque guarantee card guarantees those cheques paid face-to-face up to the limit of the card and meeting the requirements of the scheme, like the cheque card number on the back of the cheque must not be written by the payer of the cheque.

Do the banks and the clearing organisation have any plans to set a time limit after which payments by cheque will be declared irrevocable?

Sandra Quinn writes: The industry has started a project looking at this issue because we are very aware that customers want certainty.

There are a number of options on the table but it is too early to confirm when we will be able to deliver on this. As in all industry projects, everyone has to agree on the solution for it to work.

What advice do you give to people who continue to accept payments by cheque?

Sandra Quinn writes: Remember that the vast majority of cheques are paid without any problem but if you do not know the person you are dealing with, look at alternatives.

Ask your bank what their advice is about the best thing to do.

Are bankers' drafts any safer a form of cheque?

Sandra Quinn writes:No. Not at all. Bankers' drafts can be forged or stolen and are often used in fraudulent scams trying to purchase high-value items.

What are the best alternatives to cheque payments and how much do they cost?

Sandra Quinn writes: You can make a one-off automated internet or phone payment from an individual or business.

Like most personal banking payments in the UK these are generally free if your account is in credit.

CHAPS payments are the best alternative for large value person-to-person payments as they are guaranteed, instantaneous and irrevocable.

You will have to pay for these, probably anything from 5 (if you are a business customer) up to 30 (as a personal customer).

A good way of testing whether your prospective car-buyer is bona fide is offering to split the cost of the payment with your purchaser. If they are unwilling to make a CHAPS payment, you would be justified in wondering why.

Card payments are the best alternative for businesses. Nowadays cards are cheaper to accept and thanks to Chip and Pin they are getting safer.

Are electronic payments always irrevocable and, is so, after how long?

Sandra Quinn writes: A CHAPS payment is irrevocable as the money can only enter your account after the payment has been settled.

By the end of day three you will be able to see the funds from a one-off internet or phone payment in your account. They cannot be recalled by the system.

For more information, contact:

APACS - the UK payments association
Mercury House
Triton Court
14 Finsbury Square
London EC2A 1LQ
Tel: 020 7711 6200
Fax: 020 7256 5527

BBC Radio 4's Money Box was broadcast on Saturday, 9 October, 2004 at 1204 BST.

The programme will be repeated on Sunday, 10 October, at 2102 BST.

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