Bank reported accurate information regarding bounced cheque

PIPEDA Case Summary #2006-359

[Principles 4.9, 4.9.5 and 4.9.6]

The complainants, a husband and wife, alleged that a bank reported inaccurate information to a credit bureau and was refusing to correct its records.  The complainants had deposited a cheque, which then bounced.  The bank debited their account in the amount of the cheque, leaving the account overdrawn.  The complainants refused to cover the overdraft and objected when the bank began reporting a bad debt to the credit bureau.  They claimed that the bank had failed to properly inform them of the bounced cheque and that they should not be held responsible.  The investigation, however, established that the bank had acted according to the terms of the account agreement signed by the complainants, and was within its rights to recover the money from the complainants.  The Assistant Privacy Commissioner concluded that the complaint was not well-founded.

The following is an overview of the investigation and the Assistant Commissioner’s deliberations.

Summary of Investigation

The complainants are landlords.  They attended a bank branch to cash a cheque written by one of their former tenants to cover the tenant’s rent, which was in arrears.  After the funds had been issued, the bank discovered that there was a “stop-payment” order on the cheque, and it should not have been honoured.  The bank demanded reimbursement from the complainants, but they refused.  They indicated that the bank was obligated to advise them of the error in processing the cheque within 60 days, and failed to do so.  The complainants stated that they did not receive a notice about the cheque until four months later.

The bank disputed this position.  It stated that it had sent the complainants a debit notice in the same month that the cheque was deposited, and debited their account.  The bank does not keep any such notices because of the volume.  It did, however, provide the Office with a copy of the complainants’ account transactions, which showed the account being debited for the amount of the cheque shortly after it was deposited. 

As a result of the debit, the account was left in a deficit position.  Four months later, the bank’s collection department contacted the complainants regarding the deficit.  They had not checked the status of their account for several months (it was a bankbook account), and were not therefore aware of the debit to the account.  The bank pointed out that one of the terms of the account agreement is an obligation on the part of the account holder to notify the bank in writing of any errors or omissions within 60 days after an item is posted to an account.  We reviewed the agreement and the signature card confirmed that this is the case.

The bank stated that, when the complainants refused to cover the overdraft, it began to report the amount of the cheque as an outstanding loan to the credit bureau, with an "I9" rating, meaning “bad debt, referred to collection.”

The bank indicated that, when a cheque is negotiated at a bank, the usual practice is to credit the account of the person depositing the cheque and subsequently charge back the amount of the cheque if it is returned with a “stop-payment” order from another financial institution.  If the cheque was issued by the same financial institution, as was the case here, the bank can check the account of the issuer to determine if there is a stop-payment order.  In the complainants’ case, the teller who dealt with them failed to determine whether there was a stop-payment order in this instance.  Nevertheless, the bank contended that the complainants were still liable for the funds since they had been given conditional credit for the cheque on the basis that the bank would subsequently be reimbursed.

The bank referred to a clause of the account agreement form to support its view that it had the complainants’ consent to deal with the matter in this way.  We reviewed the clause in question.  It refers to the processing of cheques and indicates that all cheques deposited to the account are credited subject to final payment.  This means that if a cheque is returned unpaid for any reason, the bank will charge the amount of the cheque to the account.  The bank promises to use reasonable diligence on the account holder’s behalf to attempt to obtain payment for the cheque from the drawer of the cheque or the drawer’s bank, but the bank will not be liable for doing so later or improperly, or not doing so at all.

The bank also pointed out that it is legally entitled to proceed as it did under the provisions of the Bills of Exchange Act.  Subsection 165(3) of the Act states that:

Where a cheque is delivered to a bank for deposit to the credit of a person and the bank credits him with the amount of the cheque, the bank acquires all the rights and powers of a holder in due course of the cheque.

Subsections 55 and 73 of the same Act set out the status and rights of a “holder in due course,” and indicate that a holder in due course “may enforce payment against all parties liable on the bill.”

Findings

Issued November 14, 2006

Application: Principle 4.9 states, in part, that an individual shall be able to challenge the accuracy and completeness of the information (held by an organization) and have it amended as appropriate.  Principle 4.9.5 provides that, when an individual successfully demonstrates the inaccuracy or incompleteness of personal information, the organization shall amend the information as required.  Depending on the nature of the information challenged, amendment involves the correction, deletion, or addition of information.  Where appropriate, the amended information shall be transmitted to third parties having access to the information in question.  Principle 4.9.6 states that when a challenge is not resolved to the satisfaction of the individual, the substance of the unresolved challenge shall be recorded by the organization.  When appropriate, the existence of the unresolved challenge shall be transmitted to third parties having access to the information in question.

In making her determinations, the Assistant Privacy Commissioner deliberated as follows:

• The complainants exercised their right, under Principle 4.9, to challenge the bank with respect to the accuracy or completeness of information it holds about them. 
• On the evidence, it appeared that the bank was reporting accurate information to the credit bureau.  The bank is legally entitled to enforce payment of the cheque that the complainants cashed, and in fact, it had their permission to proceed in this way, according to the terms of the account agreement. 
• As the complainants did not demonstrate that the information the bank held about them was inaccurate, the Assistant Commissioner determined that the bank was not obliged to amend the information.  She therefore found that there was no contravention of Principle 4.9.5. 
• She did note that the bank had recorded the complainants’ challenge in its customer information system, thereby meeting its obligations under Principle 4.9.6.

The Assistant Commissioner concluded that the complaint was not well-founded.