Payments group forbids software-created cheques

Canadian enterprises will be barred from using software to write themselves pre-authorized cheques on an account holder’s behalf under a policy that seeks to prevent massive fraud in the finance sector.

The Canadian Payments Association (CPA)

Monday said the practice it calls tele-chequing will be prohibited starting Jan. 1, 2004. Tele-chequing refers to a transaction whereby someone obtains an individual’s account information and their consent for a cheque to be created using third-party software. Usually the creator of this cheque is the party obtaining the funds, according to the CPA. Authorization for use of the account information and cashing the cheque usually comes over the phone or through the Internet.

CPA director of communications and education Roger Dowdall said the non-profit, which has a mandate to facilitate the development of new payment methods and technologies, is concerned that the lack of a proper signature on the tele-cheques makes it too difficult to verify the authorization.

“”We thought it better to address it before it became a problem, as opposed to afterwards,”” he said.

Several banks contacted by either said they were unfamiliar with tele-chequing or were unavailable at press time. RBC Financial Group spokeswoman Judi Levita said the bank supports the CPA decision and believes it is safeguarding customers. “”My understanding is it was relatively new,”” she said.

Keith Burgoyne, president of Altasoft Corp., disagreed. Burgoyne’s Edmonton-based firm is among the developers that makes cheque-writing software. He said rental agencies and leasing companies in particular rely on pre-authorized forms of tele-chequing to conduct their business.

“”They’re going to be sued by a number of companies,”” he said. “”They’re going to have World War III on their hands.””

Burgoyne said banks prefer to use electronic funds transfer, where a property management firm, for example, would send a void cheque to a bank that would look after the payment for a service charge. Depending on how those transactions are managed, the service fees can add up, he said. “”Unless you’re a pretty big outfit, you’re in a lot of trouble.””

Shawn Murray, director of communications at the Canadian Bankers’ Association, said any CPA decisions are based on an active participation from many of its member banks.

“”There’s an international approach that’s taken to these things,”” he said. “”What we don’t want to be is the weak link where it becomes possible to conduct a certain type of fraud.””

Dowdall said the policy will be implemented into the CPA’s official rules through an amendment process that will take place over the next few months. All amendments must first be approved by the board and reviewed by the Ministry of Finance.

“”That also gives time for any organization that may be using these now — and obviously I’m not talking about using them for fraudulent purposes — they have some time to adapt and shift to another payment mechanism,”” he said.

The CPA has adopted a provision during the period before Jan. 1 whereby account holders will have 180 days to report any unauthorized tele-cheque, sign a declaration and have funds restored to their account.


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