Putting a 'stop payment' on a cheque doesn't cancel it completely. ((iStock))

Larry Traverence thought a cancelled cheque meant it couldn't be cashed — that the bank would stop any payment.

So when an employee at his property management company in Vancouver told him he'd lost his $1,250 paycheque and needed a replacement, Traverence put a so-called "stop payment" on the first one and issued a new cheque. 

Traverence didn't think there'd be any problem. "I've never been in a situation where putting a 'stop payment' on a cheque hasn't been effective," he said.

So imagine his surprise when Traverence discovered his employee had cashed the new paycheque, plus the original cheque, at Money Mart, a cheque-cashing and payday loan chain with more than 350 branches in Canada.

It turns out the employee wasn't on the hook for the cheque he knew had been cancelled; Traverence was. 

Money Mart told Traverence that he had to make good on the cancelled cheque because they'd paid the employee and wanted their money back. When Traverence refused, Money Mart took him to court — and won.

Bills of Exchange Act

Turns out, cheque-cashing outlets like Money Mart are entitled to take people who put "stop payments" on cheques to court, thanks to a piece of legislation called the Bills of Exchange Act. 

Marketplace tip:

Write "for deposit to the account of the named payee only" on the face of cheques to keep outlets like Money Mart from cashing them.

Written more than 100 years ago in the 1890s, it basically says that the person who writes a cheque is responsible for payment, even if they cancel it.

When CBC surveyed people in Vancouver's financial district, some said the rule seems odd.

"What's the purpose of a stop payment?" asked one man, laughing.  

There have been other cases between Money Mart and people in a similar situation to Traverence's. The winner in each case: Money Mart. 

In fact, when Traverence initially refused to pay Money Mart, the company sent him copies of judgments from similar court cases in which Money Mart emerged victorious. 

Money Mart spokesman Kevin Tompkins said his company cashed 4.4 million cheques last year, because people appreciate "fast, convenient service and long hours of operation."

"Most banks hold cheques for several business days although people don't want to wait that long to access their own money," he said.  

Money Mart charges a three per cent fee, plus $1, on every cheque it cashes. In the Traverence case, it got that amount twice.

Banking on change

NDP MP Libby Davies is calling for the Bills of Exchange Act to be amended to bar outlets such as Money Mart from cashing cancelled cheques.

"It does mean that these cheque-cashing businesses have to pay attention," said Davies. "They have to ensure that the cheques that they're cashing have not had a stop payment put on them."

Davies introduced a private member's bill last year to make the change, but Bill C-564 has not progressed beyond that first stage.

Money Mart's Tompkins said new legislation is unnecessary and instead people should treat cheques like cash.

"What we need is better consumer education about the obligations that come with writing cheques in the first place."

For now, one way to protect yourself is to write "for deposit to the account of the named payee only" when filling out a cheque. That may prevent cheque-cashing outlets from cashing it.

As for Traverence, the experience has changed how he does business.

"Now, if someone told me they lost their paycheque, I wouldn't write another one. I'd say, 'I'm sorry, that's too bad.'"