Cheque payments: Banks owe duty of care

Came across this posting - just simply felt it's a good letter. Made me Very Curious about the big banks' attitudes toward customer service here today.

Cheque payments: Banks owe duty of care
I CANNOT accept the suggestion by Ms Tan Saw Bin ('Banks can help minimise charity fraud'; ST, June 26) that banks offer an additional service, for a fee, to monitor 'unusually large payments to third parties'.

As an associate member of the Chartered Institute of Bankers (UK), I maintain that such duties, let alone service, already exist as part of the bank-customer relationship. This is because, when handling customers' monies, the bank acts as custodian, trustee and agent for the customer. It is not merely a cashier who pays, or receives, without inquiry. The bank's duty of care and diligence is very extensive and covers not only withdrawal of funds but also deposits.

Indeed, a bank may decline to accept a cheque deposit if its queries are not answered satisfactorily, even when the cheque is technically in order. In many fraud cases, banks have been held negligent for collecting, more so for paying, cheques without inquiry.

In the latest case of staff embezzlement at St John's Home, the onus is on the two banks to prove that they were not negligent when paying the forged cheques. Even if it turns out that the cheques were skilfully forged, it does not extinguish the banks' culpability. A bank is negligent if it relies merely on a technicality to justify paying a forged cheque.

We are talking about a sum of four million dollars withdrawn from two banks within a five-month period. This works out to $400,000 being withdrawn each month from either bank. The size, and perhaps frequency, of the withdrawal alone is large enough to warrant special attention.

To prove that they were not negligent, the two banks would have to show, among other things, that they did ask for a copy of the customer's board resolution or minutes of committee members' meeting to establish bona fides. This can even be done after making the first few cheque payments when a telltale pattern emerged or suspicion was aroused.

If indeed the cheques were forged the withdrawals are unauthorised. And, as forged signatures means no signature, the banks' payments could be ultra vires their mandate. They can be held accountable to their customer for the loss.

Tan Yip Meng