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How long does it take for a cheque to
clear?
How long can a financial institution place
a hold on funds when a cheque is deposited?
How long does the financial institution
that holds the account on which the cheque is written have to return it
through the clearings?
Is there a time limit for a financial
institution to withdraw funds from my account due to a cheque’s return?
Can a certified cheque ever be returned
through the clearings?
What happens if a post-dated cheque is
accepted and processed to my account before the due date?
When is a cheque considered stale-dated,
and is it no longer valid after that point?
What happens if my financial institution
processes a cheque to my account even though I had placed a "stop
payment" order on it?
Can I print my own cheques?
What are my rights if the payee named on
the cheque endorses it over to me, and it is subsequently returned?
Why am I
receiving images of my cheques with my bank statement instead of my
original cheques?
How long does it take for a cheque to clear?
First, it is important to clarify the definition of "clearing": it is
the process through which financial institutions (FIs) exchange cheques
and other payment items that they have accepted.
In most cases, when a cheque is deposited at an FI, it is sent that
evening to the nearest processing centre serving that FI. There, cheques
are sorted according to the financial institution that holds the account
of the cheque writer (i.e. the payor’s account). The cheques are then
delivered to the processing centre serving the payor’s FI. This
exchange, or "clearing", usually occurs the evening of the day the
cheque was deposited. However, in some situations, such as deposits made
late in the day, on the weekend or through an Automated Banking Machine,
clearing may not occur until the evening of the next business day.
After clearing, the cheque must still be returned to the branch that
holds the cheque writer’s account (or the unit of the FI that acts on
behalf of the branch) to confirm that it can be honoured. Within Canada,
this process generally takes from one to three business days. If the
cheque cannot be honoured - for example, due to insufficient funds, a
stop payment order or a forged signature - it will be returned to the
branch that accepted it. The return voyage will also generally take from
one to three days but could take longer in some circumstances.
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How long can a financial institution place a hold
on funds when a cheque is deposited?
A financial institution’s decision to place a hold on funds is a
proprietary matter and is outside the scope of the CPA’s clearing rules.
However, if a financial institution decides to place a hold on funds,
one important factor it will consider is the number of days likely to be
required for the cheque to reach the branch that holds the account on
which it was written and, in the event that the cheque is dishonoured,
its subsequent return to the branch that accepted it.
More detailed information on the reasons for holds on cheques and the
factors that financial institutions may consider in placing them is
available in
Holds on
Cheques: A Means of Managing Risk.
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How long does the financial institution that holds
the account on which the cheque is written have to return it through the
clearings?
In most circumstances, once the cheque has been
received by the branch that holds the payor’s account (or the unit of
the financial institution that acts in its place), it has one business
day to decide whether the cheque will be honoured or dishonoured. If the
cheque is dishonoured, under
Rule A4,
Section 5, the financial institution has until the next
business day to initiate its return through the clearings. As noted
above, the return journey to the branch that initially accepted it may
take a number of days.
There are some exceptions to the next business day rule, as listed in
Rule A4, Section 6. In case of a forged endorsement on the back of the
cheque, the drawee financial institution (i.e. the institution that
makes the decision whether to honour the cheque) has 6 years* from the
date of receipt to initiate the item’s return through the clearing. The
drawee institution may not have a direct relationship with the person
who endorsed it, so it is difficult to verify that the endorsing
signature is valid. Consequently, considerable time may be required to
uncover a forgery.
* Amendments to Rule A4 came into effect on June 23, 2008 to shorten the
return timeframes for items that are incorrectly amount-encoded,
exchanged in the wrong currency, or that bear a forged endorsement.
Items received by the Drawee prior to June 23, 2008 that are
incorrectly amount encoded or that were exchanged in the wrong currency
retain 12 month return time frame that was in effect prior to the June
amendments. If an item is received by the Drawee on or after June
23rd, the new 90 day return time frame applies. The same applies for
items being returned for the reason Forged Endorsement – there is no
time limitation for return of items received by the Drawee
prior to June 23rd. Any
items received on or after June 23rd that contain a forged endorsement
will have a return time frame of six years.
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Is there a time limit for a financial institution
to withdraw funds from my account due to a cheque’s return?
The CPA Rules do not deal
with the recovery of funds from a customer, as this is a matter that is
generally governed by the account agreement between the financial
institution and the customer.
Although most cheque
returns through the clearing system occur within 10 business days, some
returns may happen much later. For example, a cheque bearing a forged
endorsement has a longer return timeframe, since it may take longer to
uncover the forgery. Once the returned cheque has been received, the
financial institutions will generally debit the account to which it was
deposited as soon as possible.
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Can a certified cheque ever be returned through the
clearings?
Under the clearing rules, a certified cheque may be returned for only
three reasons:
- the cheque bears a forged endorsement on the back of the cheque;
- the cheque is missing a signature required as an endorsement on
the back of the cheque; or
- the cheque has been altered in a material way subsequent to its
certification, such as a change to the name of the payee or the
amount.
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What happens if a post-dated cheque is accepted and
processed to my account before the due date?
Under CPA Rules, a post-dated cheque is not eligible for clearing and
therefore should not be deposited before the due date. However, given
the large volume of cheques and the degree of automated processing, some
post-dated items may inadvertently slip through.
Under Rule A4, Section 6(b),
a payment item may be returned through the clearing by a CPA member
financial institution for the reason "post-dated" up to and including
the day prior to the due date. Once the due date is reached, the payment
item cannot be returned for the reason "post-dated".
A customer with concerns about a post-dated cheque being processed to
his or her account should raise them with his or her financial
institution. If the institution is notified within the timeframe
described above, the cheque can be returned through the clearing.
Questions about overdrafts as a result of the early processing of
post-dated items should also be addressed to the financial institution.
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When is a cheque considered stale-dated, and is it
no longer valid after that point?
Under CPA Rule A4, Section 21, a cheque is considered stale-dated
after six months, unless it has been certified. Although it may be
returned through the clearing for that reason, there is no obligation to
do so, and the payor’s financial institution may still accept it as a
valid payment item. An institution accepting a cheque that is dated more
than six months earlier may choose to contact the payor’s financial
institution to confirm whether the cheque will still be accepted.
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What happens if my financial institution processes
a cheque to my account even though I had placed a "stop payment" order
on it?
This issue is outside the scope of CPA rules and should be addressed
to the financial institution.
By way of general information, CPA Rules provide for the return of
payment items through the clearing due to a stop payment order within
the "one business day window" explained above. To identify and return a
cheque that is subject to a stop payment order within this timeframe, a
financial institution may require several details related to the cheque,
including:
- the date that appears on it
- the name of the payee
- the exact amount in dollars and cents
- the cheque number
Inaccurate or incomplete information about the cheque may hinder the
financial institution’s ability to identify and return the cheque within
the timeframe permitted.
Customers initiating a stop payment order should also verify with
their financial institution how long it will remain in effect.
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Can I print my own cheques?
Yes, but there are some practical issues to consider before deciding
to do so. Before printing and issuing any cheques, we strongly
encourage you to speak to your financial institution to discuss your
plans and present a sample so that any potential processing problems can
be addressed at this stage.
One of the key issues is that the ability to automate the processing
of cheques depends on several features. These include the use of special
ink in the Magnetic Ink Character Recognition (MICR) line at the bottom
of the cheque and the standard positioning of elements such as the
transit number and the account number. These requirements are outlined
in CPA’s Standard 006 (Standards
and Specifications for MICR-Encoded Documents)
Cheques that do not meet these requirements must be processed
manually and thus could be subject to delays. In addition, given the
time and cost incurred to process non-standard cheques, financial
institutions may levy fees for their use.
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What are my rights if the payee named on the
cheque endorses it over to me, and it is subsequently returned?
The CPA Rules deal only with the clearing and settlement of payment
items; therefore this issue is outside their scope.
By way of general information, the Bills of Exchange Act deals
with the negotiation of payment items (e.g. endorsing a cheque over to
another person) and defines the rights of all parties to a cheque,
including the person to whom it has been endorsed.
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Why am I receiving
images of my cheques with my bank statement instead of my original
cheques?
As part of the evolution of their services to clients, many financial
institutions (FIs) are introducing or expanding image-based services to
clients. As with other banking services, the features and details of
image-based services may vary somewhat between financial institutions.
Questions related to services and products offered by your financial
institution should be discussed with your FI directly.
With respect to the retention and destruction of cheques, the applicable
retention period is governed by "banking law" requirements generally and
various legislation and regulations, such as the Proceeds of Crime
(Money Laundering) and Terrorist Financing Regulations. Those
regulations expressly permit retention of an image in place of a cleared
or deposited cheque (provided certain conditions are met).
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