5 Oct 2017, 5:30pm
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  • Cheques checked the recipient’s name – BACS & CHAPS use untested numbers

    It’s a funny old world. Way back in 1979 when I got my first bank account I got issued with a thing called a cheque book. You could write out the recipient and how much you wanted to pay them and that was all you needed to do. In those days the cheques were open, so some thieving git could swipe it or steam open the letters, and pay the cheque to themselves or ask for it to be paid in cash over the counter. Fewer people had bank accounts then – when I started my first job I was paid by open cheque that I had to go to the bank over the road and exchange for cash.

    To forestall the hazard of dodgy geezers steaming the mail open they changed the system so you got to draw a couple of lines across the cheque and write A/C Payee, and they changed the law such that this happened

    Not if it is crossed ‘A/C Payee Only’ or ‘A/C Payee’. The Cheques Act 1992 and Section 81 of the Bills of Exchange Act 1882 give statutory power to the ‘A/C Payee’ and ‘A/C Payee Only’ crossing, when it is used. The legislation means that a cheque which bears the ‘A/C Payee’ or ‘A/C Payee Only’ crossing can only be paid into an account in the name of the receiver of the cheque exactly as it appears on the cheque.

    A cheque crossed A/C payee. Presumably the computer’s trained to ignore the * sign.

    Now in practice you could usually get away with paying in cheques in a different name if they were small, or if it was just the first name that was different. I presume if the payer kicked up a fuss then the bank would have clawed the money back, and if recipient had skipped to Rio then they’d have to refund the money. All in all a perfectly serviceable system, though because of all this possibility of fouling up you could only count on having the money after about five working days of paying the cheque in. When I bought my last house in the dog years of the 1990s, I had to make up the mahoosive amount of money I had lost on the previous one and pay even more because I was going upmarket from the two-up-two-down bachelor pad I had foolishly bought in 1989. To do that I went to my solicitor and paid them a cheque. There was never any issue of the secretary deciding she wanted a knees-up in Lanzarote with all her pals funded by running off with the cheque because she’d have had to change her name by deed poll to the solicitors and open a bank account in that name.

    Fast-forward 20 years and we don’t check the name any more

    Twenty years of technical progress passes, and I get to receive the proceeds of my old house. It all comes down to a six-digit number and an eight digit number. Sure, the payment system would like a name to put in the payee field, but it doesn’t matter if you put Mustela erminea, Beyonce or Beelzebub in there. The routeing system doesn’t give a damn. So criminals hack emails and change the details, because the humans look at the name and think it’s all okay but the transfer goes to a different account, which is then emptied and the bad guys scarper with the money. And you get to read newspaper articles like this, this and this

    Given all the usual delays involved in selling a house, there’s something to be said for the security of the good old crossed cheque. We were smart enough in the 1980s to realise that making the name matter was key to fixing this, but that wisdom has got lost in the search for expediency. Is it really too much to ask that 21st century money transfers meet the standards of the 20th century paper methods?

    This pathology also applies to the faster payments system – it doesn’t matter if you make the payment to your cat rather than the payee, it’s all about the six digit sort code and the eight digit account number. They could make these combinations testable by the same system used to catch mistyping of credit card numbers, but this isn’t done either. Update – this Ermine rant is not in fact correct – see David’s comment below. Despite this, some people still seem to be able to screw up in this way – presumably they err is more than one number.

    So you can easily mistype or transpose the numbers, sending your payment to the water company to Bill in Basildon, and you don’t get to know that until you start getting dunning letters from the water board. Bill doesn’t have to give you the money back – after all he’s done nothing wrong. He never claimed to be the water board, all he saw was a kind gift from an unknown benefactor come out of the blue, and he’s probably spent it now. As Faster Payments say on their website, it’s tough luck

    Faster Payments, once sent, cannot be cancelled.

    Whilst the vast majority of payments are made without issue, in rare cases problems can arise if the wrong information (e.g. sort code and account number), is entered – resulting in a payment being made to the wrong account.
    It’s vital to double check the sort code and account number before sending a payment: payments are processed only using these numbers and getting them wrong is like sending a letter with the wrong address and post code.

    The last statement is bullshit – if you send a letter using the wrong address and postcode there’s a much better chance of it getting to the right place because there’s some redundancy and there’s also local knowledge with the postman. And the name would help clarify matters, as it did with crossed cheques.

    Double checking doesn’t help with some conceptual errors, like transposing some digit pairs, for the same reason that it’s tough to proof-read your own writing. To err is human – we could do with helping people out a bit. This is why credit card numbers use the Luhn algorithm, to catch simple cock-ups like transposition and single digit errors.

    The six payment systems in the UK. More info from the BACS PDF

    How about BACS – this is the payments system 1 you use when you put money in, or take it out of NS&I. My solicitor was proposing to use that for the house money because it would save me the £30 transfer fee. I decided I was easy with paying £30 to know I’d got it on Friday afternoon rather than some unspecified time probably Wednesday the next week. If something goes wrong, time is absolutely of the essence to flag up that the crims have made off with the loot to at least try and freeze the receiving account before they empty it over the weekend 2.

    I was unable to determine if BACS checks the name, though the warnings from NS&I to get the right sort code and account number imply not. BACS gives you an automatic delay of three working days, as I found to my cost when I transferred money into NS&I using a debit card, and then got to ring them up to find out what black hole half a house worth of money had disappeared to. At least that made the three working delay between transferring out and receiving it a bit more understandable, though it still raised the blood pressure.

    We have implemented a system without number error checksums, casually tossed away the A/C payee name checking of the cheque era, and sped up the ability of the criminals to scarper with the money by an order of magnitude. This is not progress.

    Notes:

    1. BACS has a rather neat PDF describing the six inland money transfer systems in use in the UK
    2. This is why in an ideal world you should complete on any day other than Friday, particularly a Friday before a bank holiday weekend. Of course, everybody wants to move on Friday so they don’t have to take time off work, which suits the bad guys just fine

    Congrats on the new home & blog name !
    Hope Mrs. Ermine doesn’t miss the farm too much.

    Thanks! Some of the move is Mrs Ermine’s idea – mind you we are in the process of moving a secondhand greenhouse so the growing instinct hasn’t gone altogether and the requirement for a bigger garden is entirely hers πŸ˜‰

    Very true, although the ‘check digit’ system means there is a only a small chance that your mistype will end up in the wrong account as there is redundancy in bank account numbers as well, and not every combination is in use. However, there are certainly criminals intercepting corporate bank runs and stealing vast sums of money as our relationship manager from the bank came and did a presentation about it at work. Interestingly in Australia there is no check digit system in operation at all so you can receive a ‘wrong payment’ a bit like a ‘wrong number’ on the phone. I guess people have to be extra careful.

    While the the IBAN string does have check digits, I don’t think this applies to account numbers (or the a/c sort code combination) According to Oracle there is no check digit in UK account numbers πŸ™

    That’s a timely post – I’m sitting here waiting for a CHAPS payment to materialise in my share trading account. The cash disappeared from my bank yesterday having set up the CHAPS payment last Friday. The to-ing and fro-ing in all this was incredible. I think neither my bank nor the share trading platform get many retail customers using CHAPS so there was anxiety and confusion all round. It is normal for solicitors dealing with house transactions to use CHAPS, but my request seemed to baffle everyone. Long story but I first attempted to set the payment up in a branch in Reading 3 weeks ago, which failed, then I visited a branch in Birmingham last friday and they said I’d have to go to the main branch where the manager was. Filled in all the forms – had them take a photocopy of my passport, got quizzed about where the money was coming from and what I was going to do with it, then two days ago they phoned me up and quizzed me again, as the central payment people were querying the branch about why I was making the payment. So I guess though it has been frustrating and long-winded at least they seemed to be making sure it was actually my cash to send and that it would get to the right place. After disappearing into the aether for 24 hours or so I just logged onto my sharedealing account again and it has turned up – finally. Took me the best part of three weeks and visits to three bank branches in 2 cities a hundred miles apart – and cost me thirty quid! I could have done several card transactions but I’d presumed CHAPS was more secure and ‘better’ – based on what I have no idea – just the notion that if solicitors use it for house sales it must be the best way to move larger amounts of money around. How would I know though – this was a one-off transaction for me. Turned out ok I guess but what a palaver.

    On cheques with names on, I remember getting a credit of more than Β£1000 into my student account when I was at university in about 1975 – quite a lot then. It was to some random person / business and when I queried it they sent the details and the cheque didn’t even have my name on it. The bank didn’t seem interested in finding out who it belonged to and I had to basically pester them to take the cash out of my account after it had been there for weeks. Should have just spent it on beer I guess, and at the time that Β£1000 would have bought me 7000 pints!

    from what I read about in in the PDF from BACS, the faster payments system is a real-time transfer system, with an ack from the receiving account. It still suffers from the pathology of not using the name, but at least you can send through a small amount and get a confirmation if you have access to the receiving account.

    Sounds like some of the delay is in your share platform – CHAPS should be same day!

    7000 pints, eh – the first few hundred would be fun, but your present self might have hated your younger self πŸ˜‰

    6 Oct 2017, 12:45am
    by ianeholliday

    reply

    ah – the wrinkle I missed in the story was the share platform gave me an additonal reference number to the destination account sort code, account number and name. The chaps payments just go into a ‘client cash deposits’ a/c and without their extra reference they can’t match the payment to the right client account. Hence the additional delay before it arrived in my account. Crazy or what?

    Good that you picked your new county to keep the alliteration. With bank transfers I often send a trial tenner before the big bucks, just to ensure the details are correct. Its a common gripe on Moneybox that banks do no account name checking, and the bank rep just bleats as to how hard it is.

    The trial tenner is the way I use if I have oversight of both ends too. The bank rep might has a case with CHAPS and BACS, which appear to be open loop where at third party clearinghouse gets to hold the cash for a while. If they tested the name there would have to be a clearing period like cheques where he transaction could be repudiated, and you don’t really want that in a house chain. Faster Payments is real time and has an ack from the destination, and it wouldn’t be too hard to check the name and kick back in real time if they could be bothered…

    I use the trial tenner, and have been surprised at the number of small firms which have been surprised at the manoeuvre. I infer that not many of us use the trial tenner.

    Frustrating as Japan can be, at least the payment system gets things right. Any discrepancy between the account number and account name (such as a middle name, or lack of one) results in the payment being rejected.

    On the other hand if you have someone’s bank book and their seal/chop (hanko) you can walk into the bank and empty their account without being asked for ID πŸ˜‰

    What a fascinating idea the hanko – it’s a little bit like the key to your front door, a physical access token. Security seems to be by obscurity “They are usually hidden carefully in the owner’s home.” so I guess the trick is don’t keep it with your bank book.

    It’s interesting the difference in cultures for an everyday function – electronic funds transfers done absolutely right in Japan compared to here, but I was still in my thirties the last time I had a bank book. There again, we didn’t have the hanko to validate it – a bank book used to be a bearer document ISTR.

    On the assumption you have moved to Somerset; welcome to a fine county! Where have you pitched up?

    Wells is the nearest market town, a very pleasant landscape, and there appear to be resident cranes in the general area that surprises me – much to discover…

    6 Oct 2017, 4:33pm
    by The Rhino

    reply

    Near Wells by all accounts..

    “Simple Living in East Sussex” would never have worked. I hope you both love your new home.

    Ross Anderson has been agitating for some time for bank security departments to operate 24×7.

    https://www.lightbluetouchpaper.org/category/banking-security/

    Great market on Saturday in Wells! I have lived in Somerset (Draycott) and worked here (Cheddar) for the same period of time and don’t regret it for one moment! Welcome.

    Ermine, I think that you will find that the vast majority of UK bank account numbers use Modulus 10 checking rather than Checksum. Inherently better for transposition errors: https://www.vocalink.com/media/2781/vocalink-validating-account-numbers-v460_updated.pdf

    I would also strongly suggest looking at using PayM as a payment method where name checkign does take place

    I stand corrected – it looks like some fascinating history is in that document. The string of exceptions and ranges of sort codes are presumably because each bank adopted a different method of checking the combined string in the 1960s/70s. However, your point does stand, there is some protection against numerical errors. The fraud issue of not checking the name persists, but cock-ups should be hedged a fair amout. Thank you for the details!

     

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