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Protection of banks

Contributed by AnthonyMcDevitt and current to 1 November 2017

Need for protection

Banks handle thousands of cheques every day and, therefore, it is understandable that they do not examine every cheque for proper endorsement. Consequently, many cheques handled by banks have irregular, forged or missing endorsements. The law protects banks asked to make good losses suffered from defective cheques if those banks have behaved in a certain fashion. A bank seeking protection under the law must prove it qualifies for that protection.

The paying bank

A bank is not protected if it pays a cheque that has been materially altered or if the drawer's signature has been forged. A bank that pays in either instance is unable to debit its customer's account. However, under the Cheques Act, the true owner of a cheque is sometimes prevented from suing a bank that incorrectly pays out an illegally possessed cheque. The Cheques Act provides that a bank that pays on a cheque bearing a forged endorsement cannot be held liable if that bank did so in good faith and in the ordinary course of business. Therefore, the true owner of the cheque would, in this instance, have to carry the loss.

The Cheques Act also provides protection for the drawer. If a bank pays incorrectly, but in good faith and in the ordinary course of business, the seller of the goods, as the true owner of the cheque, cannot come back to the drawer of the cheque and request payment. The drawer receives the same protection if they post a cheque to a payee, if posting is reasonably expected by both parties.

A bank is not protected if it does not pay in good faith and without negligence, but it is extremely unusual for a court to find that a bank did not act in good faith. The phrase 'ordinary course of business' is very vague and open to interpretation. Legal advice should be sought by anyone in dispute with a bank.

With regard to a crossed cheque, the Cheques Act protects both a bank and, provided the cheque has reached the payee, the drawer. A bank must pay a cheque in good faith and without negligence and in accordance with the crossing on the cheque. Again, a drawer is protected if a cheque has been posted to the payee, as long as posting is reasonably expected by both parties.

Finally, the Cheques Act also protects a bank that, in good faith and without prejudice, pays another bank an unendorsed or incorrectly endorsed cheque.

The collecting bank

The collecting bank has some protection under the Cheques Act if it collects the proceeds of a cheque for someone who is not the owner. The true owner can only recover loss from the collecting bank if the bank is unable to show it acted in good faith and without negligence.

The question of negligence with regard to a collecting bank is complicated and legal advice should be sought should a dispute arise. A bank that collects a cheque that bears the marking 'account payee only' for anyone other than the named payee has normally been negligent. This illustrates clearly the importance of drawing a cheque carefully and using all means available to protect it.

The collecting bank is not protected when it collects a cheque that has been materially altered.

Special problems


Forgeries present special problems for banks. Although a paying bank should not honour cheques carrying a forged endorsement, the Cheques Act acknowledges a bank's vulnerability in this regard by providing it with statutory protection when it does.

A bank's only protection stems from its contract with the drawer which states the customer has a duty to notify the bank of forgeries. A customer who knows about a forgery, but fails to inform the bank, may be liable for the amount on the cheque.

An alteration to a cheque provides a bank with a similar problem. As a general rule, the alteration of a material part of a cheque, such as the amount, the name of the payee or the date, completely discharges the drawer and all prior endorsers from liability. A bank may be excepted from this general rule only if an alteration is not apparent.

A customer has a duty to draw cheques in a way that will not make alteration easy. An unwritten sum probably constitutes a breach, particularly if the sum in figures can be easily altered. It is difficult to predict what will amount to a breach, so a customer should always exercise considerable care.

If a customer has been negligent, the bank can debit the customer's account for the full amount of the altered cheque, unless the customer can prove the bank has been negligent in paying the cheque. If neither the customer nor the bank is negligent, the bank may debit the customer's account for the original amount of the cheque. Legal advice should be sought should a dispute arise.

If a cheque is altered by the drawer and the alteration signed, the cheque can be treated as a valid cheque in its altered form.

There is a long-running ABA telephone scam targeting households at random around Australia.

Callers claim to be from the Australian Bankers' Association, or a variation of the name, and are trying to defraud people by asking about their satisfaction with their bank or convincing them to transfer money to receive some money they are owed. Don't fall for it!

The Australian Bankers' Association does not conduct customer satisfaction surveys or contact the public in these ways. If you receive a phone call such as this, do not provide any information - just hang up.

If you have given any details to these callers, contact your bank as they can take action to protect and monitor your account.

Some of the techniques used by these scammers include:
  • Asking who you bank with, how long you have banked with them and your level of satisfaction.
  • Asking for personal and banking details, including your name and driver's license number, bank account or credit card number, PINs or internet banking login.
  • Telling people they are owed a 'refund' for overcharged bank fees but they have to pay a fee for it. They ask people to send money via post or Western Union.
Please note that banks will never ask you for PINs or confidential internet banking details. This information is the key to your account and should always be kept confidential.
Mistakes with your banking

An unauthorized transaction is one made by someone else using your account without your knowledge or consent.

Unauthorized transactions are rare (less than 25 in every million ATM and EFTPOS transactions). However, you should always check your statements to make sure that none have occurred.

If you find an unauthorized transaction, contact your bank, credit union or building society as soon as possible and make a complaint. This is important both to fix up the problem and to prevent any more unauthorized transactions.

The EFT Code sets down the rules around unauthorized transactions.

When you will get your money back
  • If a forged, expired or cancelled PIN or card was used
  • If there was fraudulent conduct by employees of your account institution or merchant
  • If the transaction took place before you received your card, PIN or code
  • If a merchant incorrectly debited your account more than once
  • If the transaction took place after you told your account institution that your card was lost or stolen or that someone else may know your PIN or password
  • If it's clear that you haven't contributed to the loss
  • When you won't get your money back
  • You acted fraudulently
  • You didn't keep your PIN or password secret
  • You unreasonably delayed telling your account institution that your card was lost or stolen or that someone else may know your PIN or code.
Even in these circumstances the amount you are liable for is subject to certain caps.
What is a mistaken internet payment?

If you do enter the wrong account or BSB number the payment will be made to the wrong account (unintended recipient). This is known as a mistaken internet payment.

The ePayments Code sets out a process that will help consumers get your money back if it has gone to the wrong account. The ePayments Code is administered by the Australian Securities and Investments Commission (ASIC) Note i . The Code does not apply to small businesses who make internet banking transactions.
What if I transfer money to the wrong account?

If you have made a mistaken internet payment, you need to contact your bank or credit union immediately. Your bank or credit union will then contact the unintended recipient's bank to try and get the money back.

If the money is still in the other person's bank account and it is a genuine mistake (because the account name and number do not match), then the process for recovering the money depends on how quickly you have reported the mistake to your bank. If you report the mistake:

Within 10 business days: the funds will be returned to you.

Between 10 business days and 7 months: the recipient's bank will freeze the funds. The recipient will then have 10 business days to show they are entitled to the funds. If they do not, the funds will be returned to you.

After 7 months: the funds will only be returned if the other person agrees.

If the money is not in the other person's account when the receiving bank is notified, then the receiving bank must make a reasonable attempt to get the money back. For example, by negotiating with the unintended recipient to repay the funds.

If your bank or credit union does not help you to fix the mistaken internet payment, you can lodge a dispute with the Australian Financial Complaints Authority.
What if I make a mistake using BPAY?

BPAY payments are not covered by the ePayments Code. This is because BPAY uses a different process to resolve mistaken payments. If you have made a mistake using the BPAY system, contact your bank or credit union, as they may be able to advise you of steps you can take to recover the money.

What if I paid the right person, but they didn't supply the goods or services?

If you transferred money to the right person, but they didn't supply the goods or service, or the goods are not what you were expecting, this is not a mistaken internet payment.

Your bank or credit union cannot help you get the money back because you authorised the payment. Some websites have a buyer protection policy and you should contact the operator of the website to see if you can claim under that policy.

If you, or someone you authorised, did not make the transfer, then it may be an unauthorised transaction, as opposed to a mistaken internet payment. While unauthorised transactions are also dealt with under the ePayments Code, the process for resolving this issue is different.

If you believe an unauthorised transaction has taken place, notify your bank immediately.

The EFT Code

The EFT Code is a code of practice that virtually all banks, building societies and credit unions have signed up to and that protects you when using electronic fund transfers. It can protect you when you:
  • Withdraw money from an Automatic Teller Machine (ATM)
  • Buy goods or services on Electronic Funds Transfer at the Point of Sale (EFTPOS)
  • Do telephone or internet banking
  • Use your credit card over the phone or internet
  • Use a prepaid phone card
To download a copy of the code, and for more information, visit Electronic Funds Transfer (EFT) code of practice on the ASIC website.

Pay and go

Contactless payment technology is becoming more common. This fast payment method allows transactions under $100 to be paid for by a tap or wave of your card. Here we explain how they work.

How they work

Contactless cards have a radio antenna in the plastic which transmits information to and from the contactless checkout terminal.

How do you know if your card is contactless?

Cards with this feature are usually marked with a special logo or marking. If you are not sure if your card is contactless, speak to the card issuer.

Problems with your contactless card

Be sure to check your account statements closely. If you see any purchases that you didn't make contact your card issuer immediately. See unauthorized transactions on your bank account for more details.

If the card issuer is a member of the Electronic Funds Transfer Code then you will have some consumer protection.

See no PIN no signature (information on ASIC's Smart Money website) for more information on this new way of approving transactions.

You should speak to your card issuer if you have any concerns about your contactless card or you want to know more about the security of this feature.

More information on contactless cards can be found on ASIC's Money Smart website here

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