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Owner takes on bank and wins

18 October 2002 - Business Owner

Using the Banking Ombudsman helped Shane Richter and his father Kenneth claim back
R94 000 in "reversed cheques" from First National Bank.

A cheque is reversed by a bank when it is revealed that it is fraudulent, this means effectively that the bank sends you, the client, a notification and then subtracts the value in reversed cheques off your bank account.

Though the shortage of cash flow caused by the saga forced the Richters to close their business, a small East London clothing and general dealer store, they were able to claim back 60% of the amount in reversed cheques from the bank.

The Ombudsman is a free service open to both business owners and private individuals wronged by their bank and can award settlement costs to complainants.

Richter, the one-time owner of the 20-year-old Mini Stores and his son, Shane, the then manager, discovered that their bank had reversed R157 000 in cashed cheques in 2002.

A university professor advised them to approach the banking adjudicator. Shane says 100% of Mini Stores' business was done through cashing non-transferable cheques on behalf of clients who would come to the stores to purchase items by cheque.

"The Banking Ombudsman's service was fantastic," says Richter, "the case took just six months to wind up."

He did not have to seek any legal aid. It was carried out in writing, mostly by email, as requested by the Adjudicator. When his business closed, Richter was forced to turn to the phone.

"Everyone told me, 'how can you go up against the First National, it's a waste of time'," says Richter.

He approached the FNB to solve the problem and they told him to accept the reversal or they would stop cashing the business' cheques.

The bank had approved his cashing of non-transferable cheques. ordinarily, non-transferable cheques can only be cashed by the bearer of the cheque.

He suspected that the bank was in the wrong as a clause existed in banking regulations which stated that banks could not reverse a cheque after a reasonable length of time had passed.

The Ombudsman ruled only that the bank refund the business 60% of the reversed cheques, saying that the business had also taken a risk accepting and cashing non-transferable cheques. Richter accepts this ruling.

Though he admits his business was risking accepting and cashing cheques from customers, he says the bank should never have allowed them to cash fraudulent cheques.

The business had previously come across fraudulent cheques during the business' own validation stage, which included contacting the bank at which the cheque was issued and verifying the customer's identity number with the Department of Home Affairs.