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ombudsman news

issue 98

November/December 2011

recent banking complaints involving cheques

This set of case studies illustrates some of the more common types of complaint we deal with that involve cheques.

These include cases where:

  • the customer complains that the bank delayed payment unnecessarily, in order to query the authenticity of a signature or amendment on a cheque - or to obtain confirmation of the intended amount;
  • the bank paid a cheque in circumstances where the consumer thinks it should not have done;
  • there was a misunderstanding about whether or not a cheque had 'cleared';
  • the bank mislaid a cheque after a customer paid it in; and
  • a customer was unhappy with the exchange rate applied to a foreign cheque that she paid in to her account.

There is more information on our website about our approach to disputes involving cheques - in the online technical resource, 'banking transfers, payments and cheques'.

issue 98 index of case studies

  • 98/1 - consumer complains that bank should not have paid a cheque that had been amended
  • 98/2 - consumer complains of financial loss because bank delayed paying cheque while it queried the signature
  • 98/3 - bank returns cheque unpaid because of discrepancy between words and numbers written on the cheque
  • 98/4 - consumer complains that bank mislaid a cheque after it was paid in
  • 98/5 - consumer unhappy about the exchange rate applied when she paid in a cheque in a different currency
  • 98/6 - consumer complains that bank failed to query signature before paying cheques drawn on his account
  • 98/7 - consumer complains that bank misinformed him that a cheque had cleared

98/1
consumer complains that bank should not have paid a cheque that had been amended

Mrs A was alarmed to find that her bank appeared to have mistakenly debited £5,000 from her account to pay a cheque for £500 that she had given to her daughter.

When she contacted the bank it denied having made a mistake. It sent her the cheque in question, pointing out that she had clearly entered on it, in words, 'Five thousand pounds'. The bank also pointed out that although the amount originally entered in figures was £500, this had been amended to read £5,000 - and Mrs A's initials had been added next to the amendment.

Mrs A wanted the bank to refund £4,500 to her account. She said the bank had been 'completely in the wrong' for failing to contact her before paying the cheque. She also said the bank should have noticed that, in addition to the 'clear discrepancy regarding the amount', it was 'obvious' that the initialled amendments were not in her handwriting.

The bank did not agree that it had done anything wrong. It told her that the amount written in words on a cheque 'trumped' the figures and that it had paid the cheque in good faith. The bank also suggested that if she had only intended her daughter to have £500, then she should ask her daughter to pay back the remainder of the money.

Mrs A said this was not possible, as she was no longer in contact with her daughter. She then brought her complaint to us.

complaint not upheld
Mrs A did not dispute that she had put 'Five thousand pounds' in words when she was writing the cheque. She said this must have happened because of a 'momentary lack of concentration'. She was certain, however, that she had entered ' £500' in numerals - and that she had not made or initialled any amendment.

We asked to see the cheque, and noted that an extra '0' had been added to the ' £500' that had originally been written in numerals. Mrs A's initials were next to the amendment. We did not agree with Mrs A that it was 'obvious' that the amendment and initials were not in her handwriting.

The bank was able to produce another of Mrs A's cheques, for a much smaller amount, that it had paid around about the same time without any dispute. That cheque contained a minor amendment, with Mrs A's initials. In our view those initials were very similar to those on the disputed cheque. There was certainly no 'obvious difference' that should have prompted the bank to query the amendment.

We were unable to conclude that it was more likely than not that Mrs A had only instructed the bank to pay £500.

We said that, in the circumstances, it had been reasonable for the bank to have paid £5,000. And we also explained to Mrs A that although we sympathised with her family difficulties, neither we nor the bank could do as she requested and 'force' her daughter to pay back the £4,500. We did not uphold the complaint.

98/2
consumer complains of financial loss because bank delayed paying cheque while it queried the signature

Mr K complained to his bank after it returned a cheque for £6,000 that he had sent to his broker in order to buy some shares in a rights issue. Because of the delay before the bank finally paid the cheque, Mr K missed the deadline for applications and was unable to get the shares at a preferential rate.

On the same day that his broker told him there was a problem with his payment, Mr K got a letter from his bank saying it had not paid his cheque. The bank said it had been unable to 'verify' his signature on the cheque as it did not have a sample signature for him. The bank added that, if the transaction was urgent, it would arrange to transfer funds by electronic money transfer, at no cost to him.

By this time, however, the cut-off date for the rights issue had already passed. Mr K's broker was eventually able to buy the shares for him on the open market. However, they cost £2,000 more than if he had been able to get them earlier.

Mr K thought the bank should 'cover this loss' by paying him £2,000. However, the bank did not agree. It said that if the payment had been urgent, then Mr K could have taken up its offer to transfer the money electronically. Mr K then referred his complaint to us.

complaint upheld
We accepted that, in view of the sum involved, it would have been reasonable for the bank to have returned the cheque unpaid if the signature differed from the specimen copy of Mr K's signature that it kept on file.

However, that was not the situation here. The reason why the bank had been unable to verify the signature was that it did not have a copy of Mr K's signature. We asked the bank why this was. It told us that it usually obtained a specimen signature for each customer when it set up an account for them. It was unable to explain why this had not happened in Mr K's case.

We noted that the bank had written to Mr K by first-class post to tell him it had not paid the cheque. We said that, in the circumstances, it would have been more appropriate for the bank to have tried to phone Mr K to confirm that the cheque was genuine. We thought that if it had done this, it would have been able to arrange payment in time for his share application to meet the deadline.

We said the bank should pay Mr K £2,000 to cover his loss. We said it should also pay him £200 in recognition of the inconvenience it had caused him.

98/3
bank returns cheque unpaid because of discrepancy between words and numbers written on the cheque

Mr V complained to his bank after it returned - unpaid - a cheque that he had sent to one of his business clients. He had intended to pay the client £5,785 and had entered this sum correctly on the cheque, in numerals. However, when entering the amount in words he had mistakenly written, 'Five thousand seven hundred and eighty five thousand pounds'.

Mr V subsequently complained that it had been 'entirely unnecessary' for the bank to return the cheque. He said his intention had been 'perfectly clear' and that the resulting delay in payment had 'irretrievably damaged' his relationship with the client, who no longer wished to make use of his services.

When the bank rejected Mr V's complaint, maintaining that it had done nothing wrong, he referred the dispute to us.

complaint not upheld
We could understand why Mr V felt that the bank should have processed the cheque despite the discrepancy. But given that he had stated the sum incorrectly in words, we said it was not unreasonable for the bank to have delayed payment until it could confirm his intentions.

The bank's records showed that before it wrote to Mr V, explaining why it had not paid the cheque, it had made a number of attempts to contact him by phone. However, Mr V had not answered any of these calls, nor had he responded to the messages the bank had left on both his business and his mobile numbers, asking him to get in touch 'as soon as possible'.

We asked Mr V if he had any evidence to support his claim that the delay in paying the cheque had 'irretrievably damaged' his business relationship with the client concerned. In response, he sent us a copy of a letter from the client.

We noted that the letter was friendly in tone and made no reference to the late payment. The client told Mr V she was 'no longer in a position' to need Mr V's business services because of a 'marked decline' in her own business. She said this had come about because of 'poor trading conditions and the overall economic downturn'. We did not uphold the complaint.

98/4
consumer complains that bank mislaid a cheque after it was paid in

Mr G complained about the problems his bank had caused him after it mislaid a cheque for just under £1,000 that he had paid in.

He had recently rented out his flat, after moving back home to look after his elderly parents, and the cheque had been given to him by his tenant. When Mr G visited the local branch of his bank to pay it in, a member of staff suggested that it would be quicker for him to use the bank's 'quick drop' deposit point rather than joining the queue for a cashier.

Mr G had never used this facility before, so the member of staff explained how it worked and filled in the paying-in slip for him. A few days later he looked at his balance and found that the cheque had still not been credited to his account.

When he called in at the bank branch to ask what had happened, he was concerned to learn that the bank had 'no record of the transaction'. He was told that the bank would make further enquiries and contact him 'in a day or so'.

Later that day, soon after he had asked his tenant to 'stop' the cheque, the bank contacted him to say it had now located the missing cheque. The bank apologised for the inconvenience he had been caused. It explained that the member of staff who had filled in his deposit slip had made a mistake with his account number. As a result, the cheque had not been credited to his account.

Mr G asked to speak to the manager and complained that the bank's mistake had created 'considerable difficulties'. He said the worry over the missing cheque had been very stressful. He had been very embarrassed about having to tell his tenant there was a problem with her cheque. And he said the delay before the cheque was paid in to his account had meant he was unable to use the money in the way he had planned.

The manager apologised for the mistake and offered to write a letter for Mr G to show to his tenant, explaining that the bank had been responsible for the problem with the cheque. The manager also said he would credit Mr G's account with £100 to compensate him for the inconvenience he had been caused.

Mr G did not think this was sufficient and he referred the complaint to us after the manager told him it would 'not be appropriate' to increase the compensation to £500.

complaint not upheld
We noted that, in the particular circumstances of this case, the amount of compensation the bank had offered Mr G was fair and reasonable - and in line with our usual approach to compensation for non-financial loss.

We accepted that Mr G had found it embarrassing to ask his tenant to stop the cheque. However, we pointed out that the bank manager had offered to give him a letter explaining that the bank had been at fault.

We asked Mr G to tell us more about the plans that he said he had been unable to carry out, as a result of the delay in paying the cheque. He told us he had been 'thinking of buying a car'. However, he admitted that he had not yet started to look for a suitable vehicle. He was unable to say what type of car he was hoping to buy - or the approximate sum he expected to pay. We did not uphold the complaint.

98/5
consumer unhappy about the exchange rate applied when she paid in a cheque in a different currency

A couple of weeks after Miss D had paid in a cheque, she complained to her bank that it had 'failed to provide the service it promised'.

The cheque concerned was made out in euros. Miss D had never before received a cheque in a currency other than sterling, so she asked at the local branch of her bank if any 'special procedure' was needed to pay the cheque in to her current account. The cashier told her to pay in the cheque 'in the normal way' and that the bank would then 'negotiate the exchange rate'.

When Miss D checked her bank statement a few weeks later she was disappointed with the amount that had been credited to her account. She complained that the bank had not kept its promise to 'negotiate' on her behalf and get the best exchange rate for her.

Miss D received a brief response from the bank, saying it had 'followed normal procedures for negotiating cheques' and was sorry that she was disappointed with the rate used. Unhappy with this, Miss D referred her complaint to us.

complaint settled
It was clear to us that the bank's use of the term 'negotiate' had caused a misunderstanding. Used within a banking context, this is a technical term meaning that the bank credits the customer's account straight away, using the exchange rate available at that time. The bank then waits to receive the funds from the foreign bank, taking a risk that the exchange rate would not have moved adversely in the meantime.

Understandably, in our view, Miss D had taken the term to mean that the bank would, quite literally, 'negotiate' in order to obtain a good exchange rate for her.

We pointed out to the bank that the complaint could have been avoided if it had taken more care when explaining the transaction to Miss D.

We explained to Miss D how the misunderstanding had come about. We also explained that although she had been unhappy with the exchange rate applied to her cheque, it was broadly in line with the rate offered by other high street banks on the day in question. Once we had reassured her on this point, Miss D said she would not pursue her complaint further.

98/6
consumer complains that bank failed to query signature before paying cheques drawn on his account

Mr T complained that his bank had debited his current account for two cheques, totalling £500, that he was certain he had never written or authorised. He only found out about the cheques when looking through his bank statements, shortly after he had completed a three-month prison sentence.

When he contacted his bank it said it would not have paid the cheques if there had been anything 'suspicious' about them. However, Mr T insisted that the cheques could not have been genuine and he asked the bank to send him copies.

After seeing the cheques, Mr T complained to the bank. He said it should have been 'obvious' that the signature on the cheques 'clearly differed' from his own. And he said that as he had neither signed nor authorised the cheques, the bank should refund the money to his account.

The bank refused to do this. It said that it had noticed a 'slight discrepancy' between the signature on the cheques and Mr T's 'usual signature'. However, as Mr T's signature had 'often differed' during the course of its dealings with him, it had decided to honour the cheques. Unhappy with that response, Mr T decided to refer his complaint to us.

complaint upheld
The bank confirmed that it retained copies of its account holders' signatures in order to help prevent fraud. And it was clear from the bank's records that it had been concerned about a discrepancy between the signature it held on file for Mr T and that on the two cheques. The bank had tried several times to contact Mr T by phone to ask him about the cheques. However, it had not been able to contact him. This was not surprising, as he had been in prison at the time.

The bank had then paid the cheques, even though it knew there was a risk that they were not genuine. In the circumstances, it did not seem fair to us that the bank should expect Mr T to cover the loss caused by its decision to take that risk.

We said that the bank should refund Mr T's current account with the value of the cheques. We said it should also pay whatever interest would ordinarily have accrued on the £500, if the money had remained in his account.

98/7
consumer complains that bank misinformed him that a cheque had cleared

Mr B, a 20-year-old student, decided to try and sell his car on a specialist trade website. He advertised the car at a sale price of £1,000 and was very pleased when a prospective buyer, Ms J, agreed to buy the car at the stated price.

Not long afterwards, she sent Mr B a cheque for £1,200. She told him she had sent the extra £200 as she needed him to do her a favour. She said she was unable to collect the car in person, so had asked a friend to collect it and look after it for a few weeks. She said she had arranged to pay her friend £200 to cover his expenses - and she asked Mr B to forward this sum to him, on her behalf.

Mr B paid in the cheque at the local branch of his bank. Four days later, he went back to the branch and spoke to a cashier. He said he wanted to transfer some of the money to a third party and needed first to be sure the payment had 'cleared'. The cashier told him the £1,200 was 'cleared for withdrawal'.

Mr B then withdrew £200 in cash and, as requested by Ms J, took it to a money transfer bureau and arranged for it to be sent on to the third party.

Later that same day the bank rang Mr B to tell him the cheque was fraudulent. This meant that his account would not be credited with the £1,200 - though it would still be debited for the £200 he had already withdrawn.

Mr B then realised that Ms J had never intended to buy the car and had tricked him into parting with £200. He subsequently complained to the bank and asked it to refund that sum to his account. He said he had only withdrawn the money because the bank had told him it was 'safe' to do so.

complaint upheld
It was evident that Mr B had been the victim of a scam and that there was no likelihood of his being able to get Ms J or her 'friend' to repay his £200.

The bank did not dispute Mr B's recollection of the conversation he had with the cashier immediately before he withdrew the £200. However, it did not accept that the cashier had misinformed him. Instead, it said that Mr M had 'failed to understand' that when the cashier had said the cheque was 'cleared for withdrawal' - this did not mean that payment was guaranteed.

We said that the bank should not have assumed that Mr B would understand the specific technical meaning of this term, as used within the banking industry.

We thought it should have been evident that Mr B wanted to know if it was completely safe to withdraw the money. In our view, the cashier should have explained that there was still a possibility that the cheque might be returned unpaid.

In the circumstances, it seemed unlikely that Mr B would have withdrawn the money and forwarded it to the third party if he had known this.

We said the bank should refund the £200 to Mr B's account, together with any charges and interest he had incurred by being overdrawn. We said the bank should also pay Mr B £150, in recognition of the inconvenience he had been caused.

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ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.