Banking adjudicator calls for new policy on bank cheques

The Star, Business Report, April 22 2003
Edward West

Cape Town - The office of the banking adjudicator has recommended that a new policy governing the issuing of bank cheques be adopted, after several disputes showed the rules regarding bank cheques were misleading and vague.

Neville Melville, the banking adjudicator, said that while the public and the business community were inclined to treat bank cheques as the equivalent of cash or as a guarantee of payment, the banks did not. Banks had been known to stop payment on bank cheques in some instances.

"This misperception is serious and has the potential to cost the banking industry and its customers dearly if left unresolved."

A bank cheque looks like an ordinary cheque, but it has different legal characteristics. with a bank cheque, a bank agrees to pay a third party from its own funds and not those of the person requesting the cheque.

People use bank cheques in preference to personal cheques where suppliers require an element of certainly that they will receive payment. On the whole, bank cheques are intended for the payment of large and expensive items, like cars and furniture, or for sizeable transaction like the purchase of a business.

Melville said the problem was that bank would sometimes permit the person at whose request the cheque was issued to stop payment because of an alleged dispute with the third party for whom payment was intended.

Additional complications arose when payment was stopped for any reason.

The banking adjudicator said he had consulted US and Australian case law to assess whether a person who requested the bank cheque was entitled to stop payment, because South African courts had not yet considered the issue.

He said persons requesting a bank cheque should be informed that it would not be stopped at will. Merchants were advised not to treat bank cheques as cash.

A bank may stop a cheque if there is evidence of forgery, if it contains material alterations, if it is lost or stolen, or if a court order is obtained.