By John Knotek, Vice President Operations – Payments, InsurePay
A re-post article from the ORBiT Canada Newsletter
Since 1990, check volumes have been on a steady decline in Canada, directly offset by an increase in electronic payments (credit and debit cards, EFTs, wires and email money transfers). The insurance industry still issues a high volume of checks and hence should be mindful of the myths versus facts for checks today.
Myth #1: Any check fraud is automatically reimbursed
A quick internet search reveals several high-profile court cases between banks and account holders over who holds liability for fraudulent checks. Whether in or out of court, the points of discussion tend to revolve around Canadian Payment Association rules, the Bills of Exchange Act, and account agreements specific to each institution, together with the actions of account holders. The former two outline rules and timelines for counterfeit, materially altered, and forged endorsements. The latter contains important provisions on customers’ responsibilities and notification periods for suspect transactions. Sounds complicated? The reality is that for check fraud, the outcome of who will be at a loss is highly dependent on the facts and circumstances of each case. While it is a rarity for such cases to reach the courts, at a minimum, be prepared to lose a lot of time in working through a check fraud situation.
Myth #2: Post-dated or stale-dated checks can’t be cashed
Yes and no. Post-dated checks clear every day simply given the sheer volume of deposits. Can you retrieve funds that have been cashed early? Yes as long as it is before the check’s date. Is it a pain? Yes again. Similarly, checks that are cashed six months after the check’s date are considered stale-dated items (except Government of Canada checks) and can be refused by the bank they are presented to. The reality is that stale-dated checks get cashed and that there is no obligation by either bank to reverse a deposited stale-dated check.
Myth #3: Stop payments are guaranteed
The simple thinking on this is “if you wrote it, you pay it”. Once a check is out of your hands there is simply no sure way to prevent it from being cashed (unless you close your account or deplete the funds). While in general the banks and their processing centers have good systems in place to facilitate stop payments, there is no guarantee.
Myth #4: Checks are the cheapest way to make a payment
Not true. When reviewing check costs there are two primary considerations: the hard costs (check purchase, bank charge, mail) and the soft costs (handling, secure storage, obtaining signatures) all of which add up to industry averages of $8 to $40 cost per check. As check volumes continue to decline in Canada, the processing centers and printing companies will likely continue to increase prices for checks due to losing economies of scale.
With these myths busted and cheaper electronic payments available, is your view of checks altered (pun intended)?