Question: I have a problem with my bank regarding the time it has taken to clear a foreign cheque. I presented a cheque drawn from my bank account in the UK to my bank in Malta. There are sufficient funds in my UK bank account. However, the local bank confirmed that although funds would appear in my account in Malta, I would be unable to release my funds within the next 4 weeks. Let's face it, the bank should be able to check that there are sufficient funds in my account as all transactions are electronic these days. Having pressed them in my emails to explain why they find it necessary to take 4 weeks to clear an EU Cheque compared to a few days in other EU Countries, my questions remain unanswered. Is that right?
Answer: A bank which receives a cheque drawn on any other bank located in another country has to incur a number of administrative processes before it is cleared. Indeed, that cheque has to be physically sent to a clearing bank abroad, which in turn would need to carry out its own processes to ensure that the person who issued the cheque is in funds (and that the cheque is not fraudulent, for example).
If you access the section Compare Charges & More on our website, you will note that the bank may take up to 30 working days for a cheque drawn by an EU bank to be cleared. One would say that the period is relatively long. However, one has to appreciate that the bank has to be fully satisfied that, prior to releasing any funds, the drawer is in funds. In the meantime, however, your bank has deposited your cheque into your account and you are earning interest on the amount.
In truth, although a cheque may be a convenient way to pay, it is certainly not the most efficient way of payment methods. That is why many attempts are being made (even at EU level) to curb cheque use and promote the use of bank-to-bank transfers which are much more efficient to the extent that funds would be available in your account within five working days, at most.
Question: A small trader in Malta exported a consignment of goods to the EU. The foreign importer asked the local trader to provide him with its bank’s name, address, IBAN and BIC codes to effect payment. However, the local trader objected to this and stated that he would prefer payment by cheque as he felt uncomfortable giving details of his bank account to third parties (even if with good intentions). The local trader was of the view that payment by cheque was more secure, although he admitted that he had never received funds directly into his account. The local trader enquired with the Unit whether he had a right to request payment by cheque rather than a bank transfer.
Answer: The consumer should feel safe to provide an account number to the importer for the purpose of receiving funds into his account. One might argue that by providing his account number to a third party, such party might mis-handle the information and instead of crediting the trader’s account with the funds due, that third party might attempt to withdraw funds from the account without his knowledge.
Although this is a valid concern, it is not that easy as one might envisage because withdrawal of funds from an account requires proof of identity, sometimes in person, and other documentation. Although many Member States still use cheques as means of payment (according to statistics, Malta’s use of cheques is quite high in comparison to the EU average), they are considered to be an inefficient way of payment. If the trader resides abroad (even Maltese persons are finding it more convenient to send money via bank transfer rather than using cheques especially through internet banking), it is more convenient to receive funds directly into an account because funds are made available the minute they are credited (usually within 24 hours of funds being sent by the trader).
If the trader sends a bank draft drawn on a foreign bank, that draft (i.e. cheque) would need to be sent abroad for clearing - a process which could take up to 18 days for the funds to become available (it could take even more if the foreign bank is not located in the EU). Although the local importer has vouched for the foreign importer integrity, there have been several occasions where local consumers received payments from abroad by cheques only to find out they were fraudulent during the clearing process. With a bank transfer, such issues would never arise.
The consumer should not hesitate to provide the bank's name, address, and IBAN CODE to the trader. Some banks do not charge for incoming fund transfers not exceeding EUR10,000 (if the amount is in euro). The customer should ask the trader that charges for the transfer should be on SHARE basis.
It is always advisable for consumers, whether they are sending or receiving bank transfers, to access their bank’s respective website relating to transfers.
Question: I received two cheques from another EU country as wedding gifts. When I went to encash them, the bank informed me of the charges it would apply to encash them. However, when the cheques were finally deposited into my account and was able to withdraw the money, it transpired that the charges were more than originally agreed. The bank insisted that the additional charges had been applied by foreign institutions involved in encashing the cheque payments and over which it had no control. Can the bank simply deduct any additional charges without informing me beforehand?
Answer: When a cheque is issued by a foreign bank, it would need to be checked and verified from the issuing bank before the local bank is able to release the funds in your account. This might involve a correspondent bank (this is an intermediary bank, a sort of go-between the local bank and the issuing bank) to which the cheques are sent. Each bank has its own charges and fees which would be charged to the local bank which originates the request for the cheque to be cleared. Some banks charge a flat rate, others charge a variable rate (a percentage on the amount), others a mix of the two. There might also be currency exchange fees if the cheque/s are denominated in a foreign currency – however, exchange fees would normally be applied by the local bank.
Your bank might not be in a position to be aware of the charges which could be levied by the foreign banks. It would however be obliged to inform you that additional charges may apply – but not the exact amount. You also need to be informed that the bank will be deducting any additional charges over and above its own charges which have to be clearly stated when the transaction is entered into.
Do you know how much you pay for enchashing a bank cheque or draft? How much does your bank charge you for sending or receiving funds into and from your account? Click here to compare fees and charges for bank services.
Do you know that your savings, current or overdraft accounts is also a payment accounts and that payments into and from your account enjoy high level of protection under the Payment Services Directive? Click here for more information.