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Thursday, 2 September 1993
Page: 905

(Question No. 299)

Senator Jones asked the Minister representing the Treasurer, upon notice, on 26 May 1993:

  (1) In this age of automatic electronic transfer and verification of funds, how do banks explain the fact that clearance of cheques takes virtually the same period as before electronic transfer was introduced.

  (2) What happens to such funds between the time they are deposited and made available to the client.

  (3) If the funds are invested by the banks during this period what happens to the interest accrued on the investments.

  (4) Have complaints on this anomaly in the banking system been referred to, or been the subject of investigation by, the Banking Ombudsman.

Senator McMullan —The Treasurer has provided the following answer to the honourable senator's question:

  (1) Electronic transfer and verification technology to date has not displaced the physical transfer of cheques. The time banks allow for cheque clearance relates not to the time required to transmit the details of a transaction from the bank where it is deposited (collecting bank) to the bank on which it was drawn (drawee bank), which is nowadays quite short, but to the time needed to cover the possible two-way journey of the physical cheque through the system.

  The cheque-clearing cycle involves time for the cheque to be sorted and sent to the drawee bank; time for that bank to decide whether to honour the cheque; and if the cheque is not to be honoured, time to return it through the system. If a collecting bank pays away on a cheque before it is verified and cleared by the drawee bank it runs the risk of loss if the cheque is dishonoured, for reasons including insufficient funds or fraud.

  (2,3) The proceeds from deposits of cheques awaiting final clearance are usually at the disposal of the collecting bank which is able to invest them. Depending on the nature of the account into which cheques are deposited, customers are either paid interest on these proceeds from the day of deposit or they are applied to reducing overdrafts. In some countries the customer would not get the benefit of the interest paid (or saved) until the funds were deemed to be clear some days after the day of deposit.

  (4) I understand that the Banking Ombudsman has received inquiries relating to cheque clearance times and the position of uncleared funds. The majority of inquirers apparently accept the situation when told that, although uncleared, funds attract interest from the time of lodgement in accounts.

  The only instances where disputes involving cheque clearance times have been formally investigated by the Banking Ombudsman's office are where it is alleged that bank staff have provided incorrect or misleading information on the clearing process, and that this has caused the customer loss or disadvantage.