Bank entitled to use less risky clearance method

Foreign cheques,
Sarah regularly received cheques of £1,000 from her family in the United Kingdom. She would deposit them at the local branch of her bank. The bank would charge a small fee and immediately deposit the value of the cheque into her bank account, applying the exchange rate of the day.
March 2016

Sarah then received a cheque for £50,000. When she went to deposit it, thinking the process would be the same, the bank told her it would use a different process and charge a much higher fee because it would need to send the cheque back to the issuing bank for processing by the on-collection method. The bank in the United Kingdom would then electronically transfer the funds into her New Zealand bank account.

She also wouldn’t be able to access the money until it was received into her account, and the applicable exchange rate would be from the day the funds were received, not the day her bank sent away the cheque. Although unhappy, Sarah agreed to proceed on this basis.

But once the transfer was complete, Sarah complained to the bank that it:

  • had not applied the exchange rate available on the day she approached the bank
  • charged her a higher fee for depositing the cheque
  • had not allowed her to access the money from the cheque immediately.

She sought $6,500 compensation – most of which was the exchange rate difference from when she asked the bank to deposit the cheque and when the funds were received. The bank explained its policy was either to negotiate a cheque, as it usually did for her, or send the cheque for collection, as it had done in this instance. The bank wasn’t prepared to accept the risk associated with negotiating a £50,000 cheque and considered this a credit decision it was entitled to make.

Our investigation

Sarah complained to us. We sought information about the circumstances in which the bank would negotiate or collect a cheque. We don’t have the ability to consider complaints about bank practices, but we can investigate when customers allege a bank policy has been incorrectly applied or improperly administered, or when a policy breaches any obligation the bank owes the customer.

The bank had, in effect, been buying the £1,000 cheques from Sarah and allowing her immediate access to the money. It sent the cheques to the paying bank for clearance and reserved the right to require her to repay the money if any of the cheques were dishonoured, something that never happened. But in the case of the £50,000 cheque, the bank – like most banks – wouldn't run the risk of such a high-value cheque being dishonoured because of the potential to leave a customer with a large debt to repay. It therefore opted for the on-collection clearance method, whereby a cheque is sent to the paying bank, which electronically sends the funds to the customer’s bank account.

The bank’s policy was not to negotiate cheques over a certain amount. The cheque Sarah presented was significantly higher than that. The bank had discretion to apply to its credit team to give the customer access to the money before the cheque cleared, but it wasn’t obliged to do this.


We didn’t consider the bank’s policy breached any obligation the bank owed Sarah, and so we didn’t uphold her complaint.

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