Financial institutions to change way cheques are deposited

Banks and building societies have announced changes to the way they handle cheques that are payable just to a bank or building society, as a further measure to reduce cheque fraud. They are now embarking on a campaign, to ensure customers money gets to the right account.

From next year people will need to add further details such as the name of the person whose account is to be credited, to the payee line of cheques that are payable to a bank or building society. However, the industry is advising that people start adding the extra details now so that they benefit from greater protection immediately.

The announcement follows an agreement by banks and building societies that from October 2006 cheques for personal accounts made out solely to an institution are likely to be declined in certain circumstances. From this date the name of the person who holds the account will also be required in the payee line. Cheques made out to personal or business customers will be unaffected. An example of how cheques should be made out is attached.

The industry worked closely with the Financial Services Authority on this initiative, which is an additional measure to beat the fraudsters and will now be working to ensure customers know what they need to do.

These revised procedures have been brought in to help protect customers against fraud but have always formed best practice and are highlighted within The Banking Code. There have been a few instances where a cheque intended for one account had been fraudulently deposited into another account. The reason this happened was that the cheque was made payable only to the institution involved, with no account name being quoted on the cheque.

Including the name of the account to be credited as well as the name of the institution, will act as a double check as to which account the money is destined for.

Adrian Coles, director general of the BSA, says: It is important that the industry is vigilant about any fraud. In this instance, it came to our attention that cheques which were written only to an institution not a named account, had been used in a fraud. As a result banks and building societies are changing their procedures to help prevent it happening again. It is important that people get into the habit of adding extra details to their cheques now, rather than risk a cheque being declined from next October.

Ian Mullen, chief executive of the British Bankers Association, says: The arrangements reflect the importance that financial institutions place on fraud prevention. Although the instances where fraud has occurred in these particular circumstances are fortunately low, it is crucial that the industry continues to make life for the criminal as difficult as possible. The new measures are simple, but provide additional security when a cheque is made payable to an institution such as a bank or building society and follow good practice guidance that is included in the Banking Code.