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Bank accounts

01 Nov 2016 - 16:34 | Version 14 |

Contributed by MonicaSettele and current to 1 May 2016

Opening an account

Under the Financial Transactions Reports Act 1988 (Cth) (FTRA) it is an offence to open an account in a false name. As such, whenever a person opens an account or adds a new signatory to an existing account, the bank is required to obtain proof of that person's identity and verify their signature. These provisions also help authorities track money they believe to be subject to taxation or the proceeds of crime.

To prove identity, an account holder has to provide identifying documents, which can be any of the broad range accepted by banks, such as a driver's licence, passport, photo identification cards and Medicare cards. The Australian Transaction Reports and Analysis Centre (AUSTRAC) (the Commonwealth agency which analyses transactions reported under the FTRA) requires that banks obtain personal identification up to 100 points. Different pieces of identification are given different values. For example, an original birth certificate or passport is worth 70 points, a driver's licence or similar photo identification is worth 40 points and any credit cards or other bank cards are worth 25 points.

An account will be blocked by a bank until all identification points have been provided and it is an offence to carry out any transaction on that account until the holder's identification and signature has been verified. The bank must then advise AUSTRAC which, within three months, advises whether the account should be unblocked or funds forfeited to the Federal Government. These rules apply to 'cash dealers' defined in the FTRA to include banks, building societies, credit unions, companies that deal in insurance or insurance intermediaries, securities dealers, futures brokers, trustees and bullion dealers.

Many of these activities will also be covered under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), most provisions of which will come into force on 13 December 2007 (subject to a 15 month prosecution-free period).

Reporting transactions

Any cash dealer must report a transaction they reasonably believe to be suspicious, for example connected to a criminal offence or tax evasion. The FTRA requires a cash dealer report any 'significant cash transactions', defined as any transaction over $10,000. The dealer can keep a register of exempt transactions, listing, for example, employers who regularly deposit or transfer large sums for wages.

Opening an account for a child

An adult can open a bank account for a child. The bank treats the adult as the child's trustee and, therefore, requires the adult to provide 100 points of identification for the child. Unlike adults, a child's birth certificate or passport is worth 100 points.

Deposit accounts

A deposit account involves some form of deposit of money with a bank. The most common forms are savings accounts, including passbook accounts and statement accounts (usually operated with a debit or credit card), term deposits, cash management accounts and cheque accounts. Cheque accounts are dealt with separately (see Cheques ).

The basic contractual relationship between a bank and a depositor is one of debtor and creditor. By depositing money into the bank, the customer loans money to the bank on certain terms and conditions, including when the money is repayable and the interest rate to be paid. A bank statement or passbook is prima facie evidence of the account balance.

The most common disputes over savings accounts arise over unauthorised transactions, high and unexpected fees and charges, incorrect debits and credits and incorrectly calculated interest and fees. Complaints about overcharging or incorrect calculations should be made direct to the bank. If the bank is unable or unwilling to resolve the complaint a person should contact the FOS (see Contact points).

Are deposits secure?

Although there are no absolute guarantees, prudential requirements placed on banks aim to protect consumers' deposits. The security of deposits in non-bank financial institutions depends upon the legislation regulating the particular type of institution. APRA is responsible for monitoring the prudential requirements of financial institutions (see Contact points).

What if I have deposit and loan accounts with the same bank?

If you have both deposit and loan (or credit) accounts with the same bank, the general rule is that a bank can use the funds in your deposit account to pay any debts you owe to the bank. This is called a banker's right of set off.

Passbook savings accounts

Savings accounts are usually covered by written conditions. Most savings accounts used to operate with a passbook. Now, most institutions allow customers to operate an account with an electronic card and provide regular statements and debit slips on each withdrawal.

Black light signatures

Where a passbook is still used, it usually contains a black light signature which is visible only under ultraviolet lamps. This arrangement is solely for the benefit of the bank - its only effect is to save the teller looking up a signature in the files.

Tax and duty

Bank accounts are subject to a number of taxes and government charges, as follows.

Tax on interest

Interest earned on money held in a bank account is considered to be income and as such, subject to tax. Customers are required to provide their tax file number to an institution at the time of opening an account. If they don't, the interest, dividends or unit trust distributions on bank and other financial institution accounts is taxed at the highest rate. Special rates apply to children under 16 years of age and may apply to pensioners and certain clubs and associations. You should check with your accountant or bank for further information if you consider you are (or your organisation) is entitled to a special rate.

While the highest rate of tax is initially deducted if no tax file number is lodged, any additional tax that is paid by an account holder until they supply the bank with that number will be refunded at the end of the tax year, if that person is entitled to receive a refund (as with any other tax that is overpaid). Customers with accounts earning interest are, therefore, encouraged to supply their tax file number when opening an account, to avoid having to apply for a refund.

Payment systems

At one time most payments were made with cash. Cash has both advantages and disadvantages as a payment method. To overcome the disadvantages, other payment systems have been developed, including cheques, credit cards, automatic teller machines (ATMs), electronic funds transfer at the point of sale (EFTPOS), telegraphic transfer and periodical payments and direct debit. More recently, payment by electronic funds transfer (EFT) has increased in popularity by regular consumers, enabling people to make payments from home or work, at any hour of the day (see Electronic funds transfer ). PayPass and payWave methods of payment at retail outlets has also increased in popularity (see radio frequency (RF) payments).

Cheques have been a preferred alternative to cash for a number of centuries. Accordingly, a complex body of law on cheques has developed, covering most situations (see Cheques ). The law regulating other payment systems is far less developed.

The basic idea behind any payment system is that the customer authorises the bank to make a payment using some agreed method. Examples of methods of authorisation include:
  • completing a signed withdrawal form
  • using a credit or debit card and PIN (personal identification number) in an ATM or an EFTPOS terminal at a retail outlet
  • completing a periodical payment form
  • signing a cheque
  • completing an online EFT transfer
  • radio frequency (RF) technology, commonly known as PayPass and payWave.

Each method carries with it the risk of a fraudulent transaction made without the customer's authority, resulting in a loss of money. Generally, it is up to the bank to produce evidence of the customer's authority.

Precisely what is considered to be a binding authorisation in each situation is governed by the contract between the bank and the customer and any relevant rules of law that override the contract or help to interpret it. Some terms of the contract are found in the written documents that are created by the bank and accepted by the customer. For example, a bank often provides the terms and conditions of a credit card contract to a customer in advance, and the customer adopts or agrees to those terms by using the card. Codes of conduct, such as the COBP and the Electronic Funds Transfer Code of Conduct (EFT Code) also impact on the bank-customer relationship (see Electronic funds transfer ). In addition, many of the terms of a contract between a bank and its customers are not spelt out - they exist automatically, implied into the contract as part of the common law or the provisions of legislation.

Unauthorised payments and forgeries

The question of who bears responsibility for a transaction authenticated by a forged signature depends on the circumstances of the case. However, it is generally the case that if the transaction is clearly not authorised by the customer, the bank has no authority to pay. The terms and conditions of the contract may try to excuse the bank in situations where the customer has been negligent in protecting the account, such as if they fail to report a lost card within a reasonable time. An alternative view states the bank need only exercise 'due care' when comparing the signature on a withdrawal form with the specimen signature, so if due care has been taken, the bank would be entitled to debit the customer's account. Despite this, if a customer believes that they have been wrongly treated by a bank in such circumstances, the customer can seek independent assistance from the FOS. In practice, once a bank is satisfied that a signature is a forgery and the customer was not working together with the forger, it will reverse the transaction.

Credit cards

Credit cards are both a method of payment and a way of accessing prearranged credit. The credit aspect is dealt with in Buying on credit .

The transaction

Bank credit card transactions involve four parties: the customer, the merchant, the customer's bank and the merchant's bank. The relationships between these parties are determined by a number of contracts. The terms of the contract between a customer and its bank are usually provided to the customer together with the application form for that credit card. Whenever conditions are changed, a new set of terms and conditions is sent to the customer. The customer is entitled to obtain a copy of the terms and conditions from the bank.

A credit card transaction can be effected:
  • in person, with the merchant completing a standardised slip detailing the customer's details (name and card number), the goods to be purchased and the purchase price. The customer then signs the completed slip. More commonly these days such transaction is electronic but some merchants still use the traditional manual imprinter.
  • by telephone, with the customer and merchant detailing the customer's details, the goods to be purchased and the purchase price. The customer then provides a verbal authorisation instead of providing their signature.
  • online, where the customer completes all of the details of the transaction and submits the same online.

The merchant then presents the record of the transaction to the merchant's bank. The merchant is credited with the amount (less the bank's fee for service). The merchant's bank then charges the purchase price to the customer's bank, which in turn debits the customer's credit card account.

Things to watch out for

Copies of credit card transactions should be retained and compared with the monthly statement. Although unusual (and a criminal offence), it is possible for the merchant to alter the amount of the transaction or put through additional transactions. The bank should be notified of any such unauthorised transactions as soon as possible. Again, once satisfied that the transaction was not authorised by the customer, the bank should recredit the account.

Withholding payment

After a customer has made a purchase, they can't legally order their bank to withhold payment from the merchant. A customer with a legal right to return goods is entitled to a cash refund from the merchant (see Buying on credit ). However, if a consumer purchases goods or services on credit, and the merchant fails to supply those goods and services, the consumer can contact the credit card provider to stop payment or have it refunded.

Multiple card accounts

A credit card account can have more than one cardholder, but the account holder (or primary cardholder) remains liable for all credit obtained on the cards. The account holder may also have difficulty cancelling additional cards because their contract with the bank usually obliges the account holder to surrender all cards before the account can be cancelled. If an additional cardholder is overseas or can't be located, the account holder continues to be liable for all credit incurred, even where the credit limit is exceeded. It could be argued that the relevant clause in this type of contract is unconscionable (see Contracts and consumer protection ), so an account holder who finds themselves in this position should contact their bank, requesting the cancellation of all cards to stop their continued use. If the bank fails to cancel the cards, or credit is incurred after this notification, the cardholder can take the matter to the FOS or to court. To overcome misuse, occasionally banks request authorisation of transactions over a certain limit, although this practice is becoming less frequent with the increased use of electronic credit systems, which automatically provide a bank's authorisation. Unfortunately, however, if a customer is unaware that their card is being misused and the transaction does not exceed the limit of credit on the credit card, the transaction will not be stopped. Some banks are now prepared to assist by preventing transactions on the card where authorisation is required, that is situations where a merchant has to contact the bank to authorise a sale. This means that only low value transactions will be debited to the account.

Blank credit card slips

It is becoming increasingly common for merchants in certain industries to ask customers to sign blank credit card slips as security deposits. Examples are hotels and hire car companies. This practice is fraught with danger for the consumer because the exact nature of what they are authorising is either hidden in the written terms and conditions of a contract with the merchant or left ambiguous. In the event of a dispute over the customer's liability, the merchant is in a far stronger position because the customer has provided their authority to debit the card by signing the bank slip (whether or not such debit is actually authorised) the merchant can simply debit the customer's account. The consumer will have recourse against the merchant, but there may be practical difficulties to taking action if, for example, the merchant is insolvent or located in another State. Whether the consumer has a claim against the bank (or other card-issuer) depends on exactly what the consumer authorised when they signed the slip.

To avoid these kinds of disputes, a consumer should insist that the blank deposit be limited to a particular amount or make clear in writing exactly what they are authorising.

Lost credit card

Given the security hazard that exists if a credit card is stolen, you should contact your bank immediately if you have lost your credit card or believe that it may be stolen. Most banks can be contacted at all times to enable a customer to place a report as soon as possible - to reduce the likelihood of fraud.

Interest-free periods

Customers should be wary of credit card accounts or other credit arrangements that advertise interest-free periods. Often if the whole amount due is not paid at the end of the interest-free period, interest will be recalculated from the date of the purchase. The conditions of use should indicate the basis on which interest is calculated after the 'free' period has expired.

Electronic Funds Transfer

EFT is a system that facilitates the electronic transfer of funds from bank to customer, customer to bank or between two of the customer's accounts via an ATM, from a customer's account to a merchant through EFTPOS systems, or online via internet banking.

A customer who wishes to make use of the electronic funds transfer system is issued a card coded with a personal identification number (PIN). Most systems allow a customer to choose their PIN, as long as it is not an obvious choice such as the customer's birth date.

ePayments Code

What is the ePayments Code?

The ePayments Code (this Code) regulates electronic payments, including ATM, EFTPOS and credit card transactions, online payments, internet and mobile banking, and BPAY.

This Code (formerly known as the Electronic Funds Transfer Code of Conduct) has existed since 1986. ASIC is responsible for the administration of this Code, including reviewing it regularly. The most recent review was completed in December 2010.

Who is bound by this Code?

This Code is a voluntary code of practice. Banks, credit unions, building societies and other providers of electronic payment facilities to consumers subscribe to this Code.

A list of subscribers is available at:

What does this Code do?

This Code plays an important role in the regulation of electronic payment facilities in Australia. It complements other regulatory requirements, including financial services and consumer credit licensing, advice, training and disclosure obligations under the Corporations Act 2001 and the National Consumer Credit Protection Act 2009.

This Code:

*requires subscribers to give consumers terms and conditions, information about changes to terms and conditions (such as fee increases), receipts and statements,

*sets out the rules for determining who pays for unauthorised transactions, and

*establishes a regime for recovering mistaken internet payments.

There are more limited requirements for low value facilities that can hold a balance of no more than $500 at any one time.

Subscribers must warrant that they will comply with this Code in the terms and conditions they give consumers. This means that compliance with this Code must be a term of the contract between the subscriber and each of its account or facility holders.

Consumers can complain about a breach of this Code to the subscriber. If a consumer is not happy with the outcome, they can complain to an external dispute resolution scheme, such as the Financial Ombudsman Service or the Credit and Investments Ombudsman, if the subscriber belongs to a scheme.

ASIC also monitors compliance with this Code. For more information about this Code, see: Businesses that have signed up to the ePayments Code must tell you, in their contract with you, that they will comply with the ePayments Code.

The Code also sets out the rules for how businesses should handle complaints before they get to the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman (CIO). The aim of this is to resolve complaints before they end up with the Ombudsmen.

At the time of the last review of the ePayments Code, ASIC introduced a new, 'light touch' section into the Code covering emerging stored value products. This section contains much less prescriptive disclosure requirements. For example, businesses that provide stored value products are not required to provide receipts. It sought to make it a 'light touch' regime so as not to inhibit product innovation. In relation to stored value products, such as smart cards, the ePayments Code guarantees:
  • access to a record of the balance left on the product
  • rights to exchange stored value for money or replacement value
  • refund rights in limited circumstances for lost or stolen stored value.

Disputes and unauthorised transactions

The most common dispute between a bank and a customer arises over the unauthorised use of a card, PIN or code. Under the ePayments Code, a cardholder who has not consented to a transaction made with their card or PIN is not liable for any loss that:
  • is caused by the fraudulent or negligent conduct of the employees of the financial institution or merchant
  • is the result of the use of forged, faulty, expired or cancelled cards
  • is incurred before the customer receives the PIN or other access method (proof that the card and PIN or code was delivered to the customer's address is not adequate proof that the customer received them)
  • incorrect double debit transactions
  • occurs because the EFT system or equipment fails to complete a transaction accepted by a terminal.
If it is clear that the cardholder did not cause or contribute to a loss, they will not be held liable.

However, where the bank can prove, on the balance of probabilities, that the cardholder contributed to the loss through fraud or by contravening one of the security requirements imposed by the ePayments Code, the cardholder will be liable for any losses that occurred before the bank is notified of the loss. However, the cardholder will not be liable for losses that exceeded any daily transaction limits or the balance of the account.

Similarly, if the account institution can prove on the balance of probabilities that the cardholder unreasonably delayed notifying the bank of the loss or misuse of the access method, the cardholder will be liable for the actual losses that occur from when the cardholder became aware (or ought to have become aware) of the loss or misuse to when the account institution was actually notified. However, the cardholder will not be liable for any losses that exceed the daily transaction limit or the balance of the account.

Where a code is required to perform an unauthorised transaction, and neither of the above situations apply, then the account holder is liable for either the least of:
  • $150
  • the balance of the account from which unauthorised transactions were performed
  • the actual loss at the time the transaction is notified.
In determining whether a bank has proved on the balance of probabilities that a cardholder has contributed to a loss, all reasonable evidence must be considered, including all reasonable explanations for the transaction occurring. The use of the correct code or access method, although significant, is not conclusive.

The ePayments Code requires cardholders to take certain precautions against disclosure of their access code. A cardholder is generally liable for an unauthorised transaction if they voluntarily or negligently disclose their PIN or access code (even to a family member or partner), or keep a record of the PIN or access code on the access method (usually the card), or in close proximity to it so as to make it available with the card in the event of loss or theft. Many financial institutions strongly recommend that certain numerical codes, such as birth dates, not be used because they can be easily discovered; a cardholder is generally liable for an unauthorised transaction if they have chosen such a PIN against the financial institutions instructions.

If the cardholder has contributed to the loss by, for example, lending their card or leaving their card and PIN number together in an unsafe place, the ePayments Code provides that they will be responsible for the loss until they notify the card-issuer. Their liability is, however, limited to the 'daily transaction limit' or to the balance of the account, including prearranged credit.

A customer whose card has been lost or stolen is not liable for any loss that occurs after they have notified the card-issuer. Most card-issuers maintain 24 hour telephone hot-lines, but where they do not, card-holders are not liable for losses incurred during the period the line was unavailable, providing that they notified the card-issuer of the loss within a reasonable period.

Precautions to take

A customer should never give their card and PIN combination to another person. The PIN should be memorised, not be written on a piece of paper carried in a pocket or purse where it can be found by a thief. It is also worth noting that the daily maximum limits imposed on ATMs do not apply to withdrawals from tellers when an EFT card is used. This means that the entire balance in an account can be withdrawn over the counter by anyone who has access to a PIN.

If a customer believes their account has been incorrectly debited they should approach the manager of the branch where the account is kept. If they remain dissatisfied, legal advice should be sought immediately (see Legal aid).

If a PIN is forced from a customer by actual or threatened violence, they should notify the institution of the loss as soon as possible. In such circumstances, a customer should not acknowledge any liability for transactions on the account and should seek legal advice immediately if the institution insists on debiting their account (see Legal aid).

Radio frequency (RF) payments

What is RF technology

Most credit and debit cards issued in Australia now incorporate radio frequency technology, this is commonly know as Master Card, PayPass and Visa payWave. The RF technology enables payments to be made when the card is held against a payment terminal equipped with a RF reader. RF payments are usually for transactions up to $101, transactions over $100 general require standard EFTPOS payment methods, involving verification by PIN or signature. It is the user's choice as to whether they use the RF payment option.

Unauthorised contactless (RF) payments

If a payment is made with your card but not with your authorisation and / or consent it is known as an unauthorised transaction and you should notify the bank or credit union where your account is. If you are unhappy with how the matter is handled or the bank or credit union does not respond you can make a compliant to the FOS. FOS is able to consider disputes about unauthorised transactions. The liability for unauthorised payments, who is responsible to pay for an unauthorised transaction, come under the terms and conditions of the card use and by the ePayments Code. A customer can only be held liable for an unauthorised RF transaction if;
  • their card was misused, lost or stolen
  • they know their card was, misused, lost or stolen
  • they took an unreasonably long time to notify the issuing bank or credit union that their card had been misused, lost or stolen

In the above circumstances the card holder may have to pay for any unauthorised RF transactions made after they became aware of the misuse, loss or theft of their card but before they reported it to the issuer, bank or credit union, however the ePayments Code can provide further protection to card holders for unauthorised transaction on a credit card account. If the card issuer, bank or credit union was notified about unauthorised RF credit card transaction, and it had the right to charge back (i.e. reverse) those transactions under card scheme rules, the card issuer cannot hold the customer liable for such transactions even if the customer had delayed in telling the card issuer about the misuse, loss or theft of their card. To gain the protection of this part of the ePayments Code, the customer must notify the card issuer about the unauthorised transactions within the 120 day period in which the card schemes allow a transaction not authorised by the cardholder to be charged back. Further information about this contact FOS, MoneySmart or view the ePayments Code of Conduct (see Contact Points in this section).


Cheques in Australia are governed by the Cheques Act 1986(Cth) (Cheques Act). This Act was formerly known as the Cheques and Payment Orders Act 1986 (Cth).

What is a cheque?

A cheque is a written direction from a customer to their bank or other financial institution, ordering it to pay a sum of money to a named person or to the person presenting the cheque (the bearer). The customer's bank is commonly known as the drawee, although the Cheques Act refers to it as the drawee institution. The customer writing the cheque is known as the drawer. The person to be paid by the cheque is the called the payee, and their bank is referred to as the collecting institution.

A duty to pay cheques

A contract between a financial institution and its customer requires the financial institution to pay cheques promptly, provided that certain conditions are met. A cheque must be written correctly, signed and there must be enough available funds in the customer's account, including the limits of an agreed overdraft, to cover the amount of the cheque. If a financial institution refuses to pay on this basis, the cheque is said to be dishonoured.

Honouring and dishonouring cheques

Provided it is not crossed and has been completed correctly (see Crossing cheques ), a cheque is payable upon presentation at the paying bank. However, most cheques are not presented and cashed in this fashion, but are instead processed through a clearing system operated by the financial institution. The clearing process usually takes three days. For a fee, however, a payee can obtain an early cheque clearance. This is often known as a 'special clearance' or 'warrant'.

Incomplete and ambiguous cheques

A paying bank can refuse to pay an incorrect, incomplete or ambiguous cheque. For example, if an amount in figures differs from an amount in words, the institution can refuse to pay, or pay the lesser amount, in accordance with the Cheques Act.

Insufficient funds

A paying bank need not pay if the account contains insufficient funds or if the cheque exceeds the amount of an overdraft. For example, a cheque for $1000 can be dishonoured if there is only $999 in the account. This is because a cheque is a contract. If the account holder does not have enough money in the cheque account, they cannot contract to pay that amount.

Cheques are paid by the paying bank in the order they arrive and not the order in which they are written.

If a customer asks the paying bank to pay a cheque, but has insufficient funds in their account, the bank can treat the cheque as a request for an overdraft. If the paying bank chooses this option, the customer must pay interest on the money at the current overdraft rate.

Not all money in a customer's account can be used to pay cheques. Funds not available include:
  • proceeds from cheques that have not yet cleared
  • funds held by the customer in an account at a different branch
  • funds held by the customer in a different account at the same branch
  • funds held by the bank after receiving notice that a bankruptcy petition has been presented against the customer.

Stale cheques

The Cheques Act provides that a paying bank may refuse payment on a stale cheque. A stale cheque is one that appears to have been in circulation for more than 15 months. If a person is holding a stale cheque and the paying bank will not pay the cheque, that person should contact the drawer (if possible) to pay that cheque.

When must a bank refuse payment?

There are certain circumstances in which a financial institution must refuse payment. The most important of these are:
  • the customer countermands payment or 'stops' a cheque (see Stopping cheques, this section)
  • the institution is aware that the customer does not have the mental capacity to incur the liability
  • the institution is aware of the customer's death for 10 days or longer
  • the bank is aware a bankruptcy petition has been presented against the customer.

Crossing cheques

A cheque can easily fall into the wrong hands, so banks and customers have, over the last century, developed special markings that communicate particular instructions. These markings, called crossings, are authorised by the Cheques Act.

The most common crossing is a general crossing, which consists of two parallel lines drawn across the face of the cheque. The words 'not negotiable' may be placed between the lines. A general crossing instructs the paying bank to pay the sum to another bank, not to an individual across the counter. For the payee to get their money, the payee must instruct their bank to present the cheque to the paying bank, using the clearing system.

As a general rule, a bank will only collect payment for a person who holds an account with it, so a general crossing provides some protection to the drawer if a cheque is lost. A bank that does pay a crossed cheque to someone other than another bank is liable for any loss suffered by its customer and the true owner of the cheque.

The words 'account payee only' on a cheque have no authority under the Cheques Act. It is a common misconception that the words 'account payee only' directs the payee's bank, the collecting bank, to pay the sum into the payee's account. The collecting bank is not, however, obliged to follow these instructions as they are not covered by the Cheques Act. In practice, all the marking does is potentially warn the collecting bank to make inquiries if asked to credit the amount to anyone other than the named payee. If satisfactory inquiries are made, the cheque can be paid to someone other than the named payee.

A cheque as a negotiable instrument

A cheque is a particular form of bill of exchange. The Cheques Act regulates the transfer of cheques from person to person and defines their liabilities to each other. A cheque is a negotiable instrument and so can be transferred from one person to another. The same laws apply to payment orders drawn upon building societies or credit unions.

Types of cheques

There are two different kinds of cheques:
  • bearer cheques: a bearer cheque orders a bank to pay a named person or bearer. The bearer is the person in possession of the cheque. Most blank cheques carry the words 'or bearer', printed just after the space where the payee's details are to be written. By crossing out these words, the cheque becomes an 'order cheque'. A bearer cheque may be passed from hand to hand in much the same way as money. The last person to hold the cheque may seek payment of it.
  • order cheques: an order cheque orders a bank to pay a named person, called their order. Even if a cheque only indicates that payment is to be made to a particular person, it is taken to mean that person or their order. To be transferred to another payee, an order cheque must be endorsed, making it a safer form of cheque.


A person who endorses a cheque promises later holders that the bank will pay the cheque and, if it does not, the drawer will pay. A drawer who stops a cheque does not end their liability; they may be sued by any holder of the cheque or subsequent endorser forced to pay.

There are two kinds of endorsements:
  • endorsements in blank: to complete an endorsement in blank, a person may simply sign the back of the cheque they wish to transfer. The action converts the cheque from an order cheque to a bearer cheque.
  • special endorsements: to complete a special endorsement, a person wishing to transfer a cheque writes 'pay X or order' on its back, signing beneath the words. With this action the cheque remains an order cheque, with the named party as the new owner.

Forged and stolen cheques

A cheque or payment order that carries a forged signature is null. A customer who has had their account debited because of a forged cheque can insist the money be recredited.

The effect of theft or fraud depends on whether the cheque in question is an order cheque or a bearer cheque.

Two terms are important: the legal holder and the holder in due course. The holder of a cheque is the person legally in possession of it. Only a legal holder may sue for the money represented by the cheque. A holder in due course is a holder who has received a complete and regular cheque in good faith and given something of value in exchange.

Bearer cheques can circulate in the same way money does. Even stolen and fraudulent cheques may be passed on in general circulation. A holder in due course gets ownership, called good title, even if the person from whom they took the cheque had no right to it. For example, if a thief steals a bearer cheque and uses it to pay a grocer, provided the grocer is honest and doesn't know it was stolen, they get good title and therefore get paid.

Order cheques, on the other hand, must be endorsed by the owner before ownership can be passed on.

Does 'not negotiable' make a difference?

As noted above, it is common practice to write the words 'not negotiable' and to draw two lines across a cheque. The words 'not negotiable' do not stop a cheque being transferred, but simply requires the paying bank to deposit the money in a person's account, not give cash over the counter.

Both bearer cheques and order cheques may be transferred from person to person in the same way that cheques without the marking may be transferred, but if a cheque bearing the marking is lost or stolen, the person who lost it or had it stolen still retains ownership.

Payments by cheque

Writing cheques or payment orders

When drawing a cheque or payment order, a person should:
  • Cross the cheque 'not negotiable' and cross out the words 'or bearer' ordinarily printed on the form of cheque
  • Not leave any space after the name of the payee or after the amount in writing or between the figures in the amount expressed in figures. If there is a space, fill it in with a line.
  • If desired, a person may also wish to add the words 'account payee only' and write the purpose of the cheque on the face of it, for example, 'electricity payment'. This should trigger the collecting bank to make inquiries as to the payment of the cheque.


When payment is made by cheque for goods and services, it is done on the assumption that the cheque will be paid on presentation. This has some important practical consequences.

Suppose that A buys goods from B and pays by cheque. The cheque is stolen from B by C who forges B's endorsement and cashes it through the banking system in circumstances where the bank is protected and A's account is debited. B is not entitled to request further payment from A because the condition for payment was not breached. However, if B loses the cheque or if it is accidentally destroyed, A is required to provide a replacement cheque. In this scenario, the Act protects A by allowing A to demand from B a security to indemnify A against any possible loss should the lost cheque reappear.

Payment by cheque can also have serious consequences in the area of private motor vehicle sales. For example, if A pays B for a motor vehicle, the ownership of the car would normally pass to A when the cheque is handed over. If A's cheque is fraudulent and consequently not honoured, B may be unable to recover the car if A has sold it to someone else in the meantime.

There are advantages and disadvantages to paying by cheque. A customer who buys defective goods may be in a better position to negotiate their return if they are able to stop payment on a cheque. On the other hand, given that a cheque can be transferred, stolen, forged and endorsed means that it is not much safer than cash.

Passing valueless cheques

It is a criminal offence to pass a valueless cheque. Under the Summary Offences Act (NT), it is an offence to obtain goods or money by use of a cheque that is not paid on presentation, unless the person who offered the cheque proves there were reasonable grounds for believing the cheque would be honoured and there was no intent to defraud.

Bank cheques

A series of forgeries and thefts have seen bank cheques no longer regarded as the functional equivalent of cash. Some forged bank cheques can be identified on close inspection, but a person has no way of knowing when they have been passed a stolen one. Despite this, most people demand payment by bank cheque in large transactions.

It should also be noted that, legally, bank cheques are subject to the same rules as ordinary cheques, which means a bank cheque can be dishonoured if it has been materially altered or if the consideration (usually money) used to obtain it has failed. The Australian Bankers' Association (ABA) has stated that a bank that is a member of the ABA will only dishonour a cheque for failure of consideration if the holder, at the time the cheque was issued, had not given value for the cheque, or knew that there were insufficient funds to pay for the cheque.

Blank cheques

A customer is not responsible for lost or stolen unsigned blank cheques that are subsequently forged, but must notify the bank of the loss within a reasonable time. The customer is not responsible for forgeries they have no actual knowledge of, even if this knowledge could have been gleaned from the customer's monthly statement.

A person should be extremely cautious about signing blank cheques. As a general rule, a drawer is liable if they intended to put the cheque into circulation. However, a person is not liable if they intended to put the cheque into circulation at a later time. A cheque stolen or fraudulently put into circulation by someone who had the authority only to keep it in a safe place has not been issued as a cheque and the drawer is, therefore, not liable to later holders. On the other hand, a cheque handed to a clerk or family member with instructions to complete it in a certain way has been issued as a cheque. A drawer is liable to later holders, even if the cheque is completed in an unauthorised fashion and the proceeds taken dishonestly.

Stopping cheques

A drawer has the right to stop payment on their cheque. Often used as a tactic in disputes between buyers and sellers, the action of stopping a cheque does, nevertheless, have particular legal implications should the matter wind up in court. When a cheque bounces or has its payment stopped, a court may not hear evidence about any reasons, however valid. The drawer may be ordered to issue the cheque and pay costs.

Money paid by mistake

As a general rule, an institution can recover money it has paid by mistake. Banks often use this principle to recover money from incorrectly paid payees. The most common mistake occurs when a cheque stopped by a customer is paid anyway. A payee of a stopped cheque may be able to keep the money if they can show that their position has altered significantly and it would be unfair for them to return the money. Spending the money however, is not normally enough to prove that a payee's circumstances have significantly changed.

Money mistakenly credited to a customer's account is regarded differently. A bank has a contractual duty to keep proper accounts. If a customer reasonably believed the money to be rightfully theirs, they may not have to return it if they can show they would be severely disadvantaged by the action.

A bank that mistakenly debits a customer's account must credit it. Any cheques dishonoured between the time of the mistaken debit and the re-crediting are considered wrongfully dishonoured if there would have been sufficient funds in the account to pay them.

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