Thursday 28 January 2010

Bank Shenanigans: Post-Dated and Stopped Cheques

Did you know that post-dated cheques and stopped cheques can cause you considerable grief?

Yesterday, I discovered that my (current) bank, the Bank of Montreal, had processed and withdrawn funds from my account despite the fact that the cheque I had written was post-dated for about a week later. When I called the customer service line expecting some sort of redress for what I perceived to be BMO's negligence, I was told that they would do nothing, that they had done nothing wrong or negligent in any way, since the bank is under no obligation to prevent funds from being withdrawn early. If sufficient funds are in the account, then it is paid no problem. What if sufficient funds are not in the account I asked, would there not be NSF charges incurred? The answer unfortunately seems to be yes, I would be on the hook. If a had a problem I should speak to the cheque recipient who had presented the cheque early. Conclusion: the date you write has no significance and is no protection. Post-dated cheques are not a reliable or trustworthy hassle-free method of managing bank account cash inflows and outflows.

A Google search uncovered this Canadian Payments Association FAQ on Cheques that confirms the optional, non-obligatory, one might say at the convenience of the banks, nature of the usual practice to tell the recipient that it is only to be presented on the due date. Note the red highlighted weasel words should and may.

Relevant quote:
" Under CPA Rules, a post-dated cheque is not eligible for clearing and therefore should not be deposited before the due date. However, given the large volume of cheques and the degree of automated processing, some post-dated items may inadvertently slip through. Under Rule A4, Section 6(b), a payment item may be returned through the clearing by a CPA member financial institution for the reason "post-dated" up to and including the day prior to the due date."

Even granting there might be some unstated necessity to exempt the banks from the legal responsibility for their incompetence in providing the service a post-dated cheque is intended to do, the symptomatic attitude "if we at the bank screw up, it's you the customer's problem to fix" is, shall we put it politely, annoying. Unfortunately, I see no solution but to either harass the bank if material losses like NSF charges occur, or not to write post-dated cheques at all.

Paying electronically is just as fraught with uncertainty and bank freedom. You must pay a couple of days in advance since the banks do not guarantee even then that the payment will occur instantaneously on the due date - BMO's blurb from the Agreements for Everyday Banking states its huge leeway in the section on automated services: this
"However, we may require up to five banking days:
- to process any deposit, including any transfer between Accounts;

- to act on bill payment instructions."
and on the website, BMO gives itself this liberty:
"For future-dated bill payments, please ensure you have sufficient funds in the account you have selected at least 1 business day prior to the payment date." i.e. they may withdraw the payment a day early as I have seen happen. Not very impressive in the computer age I'd say.

The other problem I came across while looking for information on the above. When you put a stop payment on a cheque, you are still exposed to it being cashed and having to pay anyway. The simple version explanation of how this can happen is in Before you write a cheque, take note of this little known law that appeared in the Vancouver Sun. A more complicated nuanced explanation is Lost and Stolen Cheques, Bank Drafts and Trust Cheques: Some Modest but Partial Solutions in the March 2009 Advocate. As the title of the article states, problems can arise from cheques that are lost or stolen. The basic though not perfect solution is to a) cross all cheques, that is, draw two parallel diagonal or vertical lines across the cheque; b) add the words, "for deposit only by payee - non negotiable"; c) add the words "not payable more than X days after date". Or they suggest using a wire transfer since that puts the bank on the hook.

I wish it were possible to get protection by adding the words "not payable before date" to counter the prematurely expectorated post-dated cheque but I guess the Bills of Exchange Act that created this reality seems not to have contemplated the value of enabling people to pay with certainty only on a due date and not before.

You also have to the crossing by hand since it seems there aren't any companies in Canada offering cheques pre-printed with the crossing done. Surely the banks and cheque printing companies know the advantages. Why don't they begin offering pre-crossed cheques? In the UK, such cheques are commonly available.


Aolis said...

Interesting post.

Aolis said...

I tried to explain this to my wife and she thought I was talking about hockey.

Patrick said...

Unbelievable. What do banks do for their customers then? I'm having a hard time making a list that justifies the fees they charge.

CanadianInvestor said...

Aolis, my wife just yawned ....

Just wrote my first crossed cheque today. Of course that doesn't prevent the bank from screwing up, only makes them responsible if they do. Getting them to accept the responsibility and fix the error would be another hurdle, no doubt.

Aolis said...

I found two followups done by Don Cayo, who wrote the "Before you write a cheque..." The May article said that the cheques were being refused because "the parallel lines confuse electronic scanners".

The June article suggests that you just have to write "for deposit to the account of the named Payee only" on the cheque without the lines.

I called Royal Bank and they told me that it might require an extra phone call but they would process a crossed cheque. I think I'll just write the above text as it will be easier to convince people that I'm giving it to.

Aolis said...

Forgot the links.

Anonymous said...

I came across this exact problem with BMO about 4 years ago. In my case I didn't have sufficient funds and my account went into overdraft. When I queried the bank I was told the exact same thing. In fact, in their words I was told that "no one looks at the dates on cheques anymore". My problem with this statement was that a year previous I tried to deposit a cheque that was dated over a year old (The January hazzard of writing old year instead of new year). I never noticed, but the bank sure did and refused to process it.

CanadianInvestor said...

Aolis, thanks for the very useful links.
Anon, funny how rules get applied randomly, huh? Probably more incompetence than viciousness is my guess.

Unknown said...

I have had this exact same problem with the Royal Bank. I just tell them, I will have funds in the account to cover hte post dated cheque by the day it is writen, and not before. If your teller chooses to honour the cheque that's your institutions error, and as such I will not be paying any fee's as a result of said cheque being cashed. They are not legaly responsible for their own errors, but If they so much as hint that they won;t immediatly and always refund any fee's, I tell them I will take my bussiness elsewhere. With all the fee's they charge they always refund the 5$ overdraft fee cheerfully.

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