BROCHURE BY BANKING COUNCIL

WHAT I SHOULD KNOW ABOUT CHEQUES AND FRAUD

This brochure will help you to understand how cheques work and how to prevent fraud.

A cheque is a signed, written instruction I give to my bank to pay money out of my account.

This depends on how I make out the cheque.

• If I make a cheque out to "J P Smith" or bearer my instruction is for the bank to pay J P Smith or any other person who obtains the cheque and presents it for payment. (The words "or bearer" are normally pre-printed on the cheque.)

 If I make it out to "J P Smith" or order my instruction is for the bank to pay J P Smith or anyone else to whom J P Smith may sign over the cheque, or to any other person to whom it may be signed over by a subsequent holder. (With the exception of a cash cheque, if I cross out the words "or bearer" which are pre-printed on the cheque form, the cheque automatically becomes payable to order.)

• If I make the cheque out to "CASH" it is payable to bearer, even if the words "to order" appear on the cheque.

The three types of cheques mentioned above are referred to as "transferable". This means that those cheques can be passed on (transferred) by the person to whom the cheque is made out (the "payee") to other persons, who then become entitled to receive payment on the cheque.

• If I make it out to "J P Smith" and mark the cheque "NOT TRANSFERABLE" my instruction is that only J P Smith may be paid.

Suggestion: If you want to mark a cheque "NOT TRANSFERABLE" make sure that you inscribe the instruction boldly across the face of the cheque (preferably by using a rubber stamp with red ink).

Also make sure that you make it out in the full and correctly spelt name of the person you want to pay. Banks may reject the cheque if you misspell the name of the payee, or if – in the case of a company – you use the trade name of the company instead of its correct registered name.

Yes. Because of recent changes to the law I must use the not transferable marking. In future, if I make the cheque out to "J P Smith only" the cheque may still be signed over to someone else.

 A crossed cheque may not be paid across the counter - the money must be paid into a bank account. This helps to prevent fraud, since it is usually possible to trace the person to whom the cheque has been paid. In addition, if a crossed cheque has come into the hands of the payee, but is then lost or paid out to the wrong person, my debt against the payee has been discharged.

If a cheque is not crossed, a person can receive payment in cash across the counter.

Suggestion: Always cross your cheques unless the person you are paying asks for a "cash" cheque, or if the person does not have a bank account.

The NOT NEGOTIABLE marking is different to the NOT TRANSFERABLE marking.

If I cross the cheque and mark it NOT NEGOTIABLE the payee may still transfer the cheque to someone else. However, if the cheque gets stolen, the thief - or anyone taking the cheque from the thief – has no claim against me. This means I can stop the cheque and nobody can successfully sue me for payment if the cheque has been transferred through an illegitimate transaction.

Suggestion: Always mark crossed cheques NOT NEGOTIABLE.

Yes. Even though the NOT TRANSFERABLE marking should ensure that no one other than the payee receives payment, the cheque may still come into the hands of someone who is not allowed to receive payment. The NOT NEGOTIABLE marking brings about additional protections for the true owner of the cheque, by giving rights in certain circumstances against any other person who has been in possession of the cheque.

Suggestion for sending cheques through the mail.

Make sure that cheques sent through the mail are always crossed, made payable to a specified person and marked "NOT NEGOTIABLE" and/or "NOT TRANSFERABLE". Do not use staples or paperclips to attach the cheque to a letter – it’s a good way of telling a thief that there's a cheque inside the envelope. Always name the payee correctly (which includes in the case of a company the addition of "(Pty) Ltd" or "Ltd" and, in the case of close corporations, the designation "CC").

Never send a cheque by mail unless the payee has authorised payment by cheque through the post. If the payee has not done so, you will be responsible for any loss or theft of the cheque.

My bank must see to it that my instruction is correctly carried out. The bank into which my cheque is deposited (i.e. the bank at which the depositor has his/her bank account) must take due care that only a person who - from the outward appearance of the cheque - is entitled to it, may receive payment on the cheque.

My bank must also ensure -

• that my signature is on the cheque;
• that there are no obvious alteration (e.g. of the payee's name or the amount) unless the drawer has signed next to it;
• that the cheque is not post-dated or stale (more than 6 months old).

The bank where the cheque is deposited must ensure that the person depositing the cheque is allowed to receive payment. This means that:

• a non-transferable cheque made out, for example, to J P Smith, is not paid to anyone other than J P Smith;
• a cheque made payable to "J P Smith or order" is either paid out to J P Smith or has a signature on the back indicating that the cheque has been made over to someone else.

I must take care that I make out my cheques in such a way that they are not easy to alter. For example, if I leave blank spaces after a payee's name or the amount of the cheque, then a cheque payable (for example) to "Mr Morgan" may easily be altered to become a cheque payable to "Mr Morgan Botha". If I leave a space between "one hundred" and "rand" my cheque may easily become a cheque for "one hundred thousand rand"!

I have a further duty not to be careless in leaving my cheque-book lying around or giving other people the opportunity to forge my signature, in order to avoid unnecessary loss. If I do this, the bank may have a claim against me on the basis of negligence.

I am also responsible for advising my bank as soon as possible if I suspect any fraud or loss.

Suggestion: Keep your cheque book separate from credit cards or ATM cards or other documents that contain your signature. If a thief gets hold of your cheque-book, but does not know your normal signature, the forged signature will probably not resemble your signature at all and your bank will be liable if it fails to pick up a bad forgery. Keep your cheque-book locked away in a safe place when you don't need it.

On average, a cheque will be handled by about 20 people between the time I make it out, to the time it is presented to my bank for payment. This means that there are many opportunities for the cheque to be intercepted.

Sophisticated criminals can bring about alterations that are invisible to the naked eye.

Suggestion: Statistics prove that electronic payments are far safer than cheques. Most banks have facilities for accounts to be paid through ATMs, the internet or on a "bank-by-phone" system. These work particularly well for regular accounts, such as telephone, electricity, rates and taxes, rent payments and so on. They also save you time and effort. To know more about electronic account payments you can phone your bank at one of the following numbers:

ABSA Bank: 08600 08600

BOE/NBS: 0860 13 13 33

FNB: 0800 11 22 44

NedBank: 0860 114 990

Saambou: 0800 139 555

Standard Bank of SA: 086 0123 000

 Further precautions against theft and fraud

• Blank cheques should be locked away. Report loss or theft to your branch immediately and request that payment be stopped (countermanded).
• Never sign blank cheques or "cash" cheques ahead of time since fraudsters can simply fill in the details to suit themselves.
• Also keep paid cheques that are returned with your bank statements in a safe place as they provide a copy of your signature. Fraudsters may even try to re-use these cheques.
• When making out a cheque, write out the full name of the payee. For example, if you wish to issue a cheque in favour of Gauteng Drycleaners (Pty) Limited, write out the whole name, not just Gauteng Drycleaners.
• The amount in figures should be written as closely as possible to the rand sign ("R") to prevent fraudsters from raising the amount.
• Unused spaces after the name of the payee and after the amount should be filled in with lines or asterisks to prevent fraudulent additions.
• Cheques should be completed in indelible ink.
• Written text should penetrate the paper surface and leave an indelible impression. Use a ballpoint pen for handwritten cheques.
• Typewriters should be fitted with a fabric ribbon and not a carbon or correctable ribbon.
• Do not use pencil or ink that can be erased or laser type printers as text can easily be removed
• When you receive a cheque, keep it in a safe place and deposit it as soon as possible. You may cross it "not negotiable" for your own protection. Cheques become "stale" after six months.