Banks liability for "clearing" fraud

plodder

First post on this forum, so I don't know if this has come up before.
It concerns a fraud mentioned on Joe Duffy's radio show a number of times in different guises.

The gist of it is that an apparently reputable person/organisation (the scammer) sends you a cheque, which you lodge to your account. The amount on the cheque is for a relatively large sum of money. The scammer contacts you and tells you, there has been a mistake. The cheque was for too much, and can you send some of it back, as soon as the cheque clears.

The scam depends on the apparently not very well known fact, that banks credit the amount to your account immediately, or at least some time before the cheque actually clears. In the meantime, you may have sent off some money to the scammer, believing that the cheque has cleared. Of course, the cheque fails to clear, and the money is taken from your account again.

The question is why aren't the banks at least partly liable in this case?

1) Afaik. It used to be the case that cheques had to really clear, before the money was credited to your account. If so, when did this change, and surely it was up to the banks to ensure their customers knew about the change.

2) It seems much more reasonable for customers to have to request this pre-clearing service, rather than have it given to them unbeknownst, and leaving them vulnerable to this type of fraud.

So, the question is, did the banks change the terms of their contract with their customers, ie. letting people think the cheques had cleared, when they hadn't, and should they not be liable for any damage that results from that?

What do other people think? Incidentally, this doesn't concern me or anyone I know ...

Del2005

It's a scam that uses the banking system not the banks being in on the scam. When a cheque is cleared in your account after x days you can draw down on it. Your bank then sends the cheque back to the issuing bank to get the funds, which can take several weeks. When the issing bank get the cheque they find out it's fake and don't transfer any money to your bank, who then take their money back from your account.

The banks haven't changed anything it's just scammers using the banking system to scam people.

The only way to stop it is to not send money back till you've gotten confirmation from your bank that the cheque has been OK'd by the issuing bank or don't accept cheques.

Also most of the times I've seen this scam it falls well under the "If it looks too good to be true, it isn't"

Our man in Havana

The cheque is cleared for fate 7 days after presenting it for an Irish cheque drawn on an Irish clearing bank. Depending on your relationship with your bank they may give you value for the cheque sooner than this. It is now standard practice not to give value until 7 days have elapsed.

plodder

Del2005 wrote: »

It's a scam that uses the banking system not the banks being in on the scam.

Yes, there are obviously different things going on here, but I was really only querying about one specific aspect of it. The banks are obviously not "in on the scam" but they might still have a liability for some of the harm done.

When a cheque is cleared in your account after x days you can draw down on it. Your bank then sends the cheque back to the issuing bank to get the funds, which can take several weeks. When the issing bank get the cheque they find out it's fake and don't transfer any money to your bank, who then take their money back from your account.

I realise that is what the banks do now, but the question is, did they always do it this way? If so, then my point is defunct. If not, then I think the banks had a responsibility to inform people of any change in practice, and maybe more than that. Maybe, they had a responsibility not to do this, unless requested by a customer.

The only way to stop it is to not send money back till you've gotten confirmation from your bank that the cheque has been OK'd by the issuing bank or don't accept cheques.

That's part of the point as well. You never do get confirmation from the bank if the cheque clears. You only find out if the cheque bounces, and the money is taken away. In terms of possible best practice, a bank could tag any lodgments that haven't cleared yet, if you check on-line. But as far as I am aware, banks don't do this.

Also most of the times I've seen this scam it falls well under the "If it looks too good to be true, it isn't"

Of course, that is good advice, but again, we discussing a specific aspect of it here.

Bond-007 wrote:

The cheque is cleared for fate 7 days after presenting it for an Irish cheque drawn on an Irish clearing bank. Depending on your relationship with your bank they may give you value for the cheque sooner than this. It is now standard practice not to give value until 7 days have elapsed.

That sounds reasonable, but in all these cases, this clearly didn't happen.