Bills Digest No. 187 1997-98 Cheques and Payments Orders Amendment Bill 1998

Numerical Index | Alphabetical Index

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.


Passage History
Main Provisions
Concluding Comments
Contact Officer & Copyright Details

Passage History

Date Introduced: 8 April 1998

House: House of Representatives

Portfolio: Treasury

Commencement: The Act cited as the Cheques and Payments Orders Amendment Act 1998 commences on the day on which it receives Royal Assent. However, proposed section 2 covers the commencement of the amendments proposed in Schedules 1, 2 and 3 which will commence on Proclamation. If Schedules 1, 2 and 3 are not proclaimed to commence within 6 months of Royal Assent they will automatically commence after the end of that period.


The object of the Bill is to amend the Cheques and Payment Orders Act 1986 (the CPOA):

  • to allow building societies, credit unions and their industry Special Service Providers (SSPs) to issue cheques in their own name; and
  • to repeal the provisions of the CPOA that relate to payment orders that may currently be issued by building societies, credit unions and other non-bank financial institutions.

The policy objective is to ensure that products offered by building societies and credit unions will be more comparable with those offered by banks. Consumers will have greater freedom of choice in deciding on the use of a financial institution which offers similar products.

The Bill will also make a number of miscellaneous amendments to the CPOA to improve the effectiveness of the CPOA and to clarify its operation.

A separate Bill - the Cheques and Payment Orders Amendment (Turnback of Cheques) Bill 1998 - introduced on the same date, clarifies a number of legal uncertainties in the interpretation of the CPOA that could attach to the payment system in the event, however remote, a participant in that system were to become insolvent. These uncertainties are overcome by deeming unsettled cheques to be dishonoured, so that collecting institutions could reverse the provisional credits made to their customers' accounts, and allow the 'turnback' of the unsettled cheques to the depositing customers. In consequence, holders of affected cheques could be able to turn for payment to the person who wrote the cheque (the customer of the failed institution), the person liable to the cheque.


The Financial System Inquiry

The Wallis Committee was set up to stocktake the results of financial deregulation of the Australian financial system since the early 1980's, to establish a common regulatory framework for overlapping financial products and to propose ways of dealing with further financial innovation.

The Final Report of the Financial System Inquiry (FSI), chaired by Mr Stan Wallis (President of the Business Council of Australia), was released in April 1997.(1)

A number of recommendations were made to intensify competition and efficiency in the financial system, including recommendations for substantially streamlined regulatory arrangements.

In response to the FSI Report, the Treasurer announced that the Government intends to institute a wide-ranging set of financial system reforms. A package of Bills(2) to implement the Government's response to the recommendations of the Financial System Inquiry (the FSI) in its report the FSI report was introduced on 26 March 1998. Among these Bills was the Payments Systems (Regulation) Bill 1998 to regulate the payments system, which covers the system of payment instruments (cash, cheques, smart cards among others).

With respect to the payments system, the Government accepted the Committees' recommendations. Of special relevance to banking law, the Committee recommended the formation of a Payments System Board under the control of the Reserve Bank of Australia (RBA) to regulate the payments system; liberalisation of access to the clearing system; regulation of stored value cards; and laws to allow for electronic commerce. The Payment Systems (Regulation) Bill 1998 details the proposed new regulatory framework for the payments system, which is being introduced consistent with the recommendations of the FSI.

A key recommendation of the FSI was that the existing institutionally based system of prudential regulation should be combined in a single agency at the Commonwealth level to be called the Australian Prudential Regulation Commission (APRC). The Australian Prudential Regulation Authority Bill 1998, which was introduced at the same time as this Bill and which seeks to establish the Australian Prudential Regulation Authority (APRA), implements this recommendation.(3)

Amendments to the Reserve Bank Act 1959, as provided for in the Financial Sector Reform (Amendments and Transitional Provisions) Bill 1998, provide for the creation of the Payments System Board (PSB) within the RBA to provide for policy making in relation to the payments system and to increase the accountability of the RBA in relation to its role in the payments system.

Recommendation that Building Societies and Credit Unions be permitted to issue their own cheques

At present customers of building societies and credit unions draw cheques on a bank through agency cheque arrangements where two institutions are represented on a cheque. As for the overall cost of the payments system the FSI Report noted that as in other English speaking countries, cheque usage in Australia is high by international comparison and this has implications for the overall cost of the payments system.(4)

In July 1995, the former Commonwealth Government had announced that it would amend the CPOA to allow building societies, credit unions and their industry SSPs to issue cheques in their own right. The FSI Report recommended that in the interest of encouraging competition in the provision of financial services to the community, the amendments foreshadowed by the former Government should be enacted.(5)

The FSI Report whilst supporting the extension of own cheque issuing rights to building societies and credit unions on grounds of competitive neutrality, also felt the need to weigh the benefits of new entry against efficiency criteria given that cheques represent as much as 70 per cent of the total non-cash cost of the payments system. It therefore recommended that issuers of cheques should meet objective performance benchmarks.

The FSI Report therefore recommended that other financial institutions should be allowed to issue cheques in agency arrangements with deposit taking institutions (DTIs) or their SSPs, subject to the approval of the APRA. (6)

Abolition of Payment Orders

All building societies and credit unions, together with five non-bank financial institutions prescribed for the purpose are entitled to issue payment orders. About a further approximately 400 other financial institutions registered with the Reserve Bank under Financial Corporations Act 1974 (Cth) also have a statutory right to apply to be prescribed as 'non-bank financial institutions'.

Although payment orders have the same rights and obligations as cheques, non-banks have come to regard payment orders as second class instruments and hardly use them in practice. The Regulation Impact Statement states that with the exception of two non-banks currently issuing payment orders, building societies and credit unions have preferred to access the payment system through agency cheque arrangements with banks.(7)

The Explanatory Memorandum also adds that the abolition of payment orders and the repeal of the provisions relating to them will greatly simplify the structure of the CPOA and assist in its interpretation.(8)

The measures proposed by this Bill complement those proposed by the Payment Systems and Netting Bill 1998 and the Cheques and Payment Orders Amendment Bill 1998, to enhance the effectiveness of arrangements within Australia's payments system.

Main Provisions

The principal reforms proposed by the Bill are in the Schedules to the Bill.

Cheques to be drawn on Financial Institutions

Part 1 of Schedule 1 of the Bill sets out the main amendments to the CPOA to enable financial institutions to draw cheques. Proposed subsection 3(1) defines financial institution to include banks as well as building societies, credit unions and their SSPs. The Bill repeals the definition of bank in subsection 3(1) of the CPOA and replaces it with the definition of financial institution in Item 9 of Schedule 1. Subsection 10(1) of the CPOA currently restricts the ability to issue cheques to a bank. This subsection is repealed and substituted by proposed subsection 10(1) in Item 14 of Schedule 1 which extends cheque issuing rights to financial institutions.

Repeal of Part VIII of the CPOA relating to Payment Orders

Part VIII of the CPOA which makes provision for payment orders will be repealed by Item 15 of Schedule 1. Item 16 of Schedule 1 will repeal the current Schedule to the CPOA that modifies and applies relevant provisions of the CPOA to payment orders.

Miscellaneous amendments to the CPOA

Schedule 2 of the Bill sets out a number of miscellaneous amendments proposed to be made to the CPOA to improve its effectiveness and clarify its operation. A summary of the more significant amendments proposed in the Bill, succinctly outlined in the Explanatory Memorandum, is set out below.(9) The Bill will:

  • amend the external presentment provisions of the CPOA to provide that external presentment of cheques by exhibition to the 'proper place' is subject to a 'reasonable hour' test (Items 12 and 13 of Schedule 2);
  • provide a mechanism for requests for further particulars in relation to a cheque, or for the exhibition of a cheque, where an internal presentment of a cheque has been made to the 'proper place' or to the 'notified place' by means other than exhibition (Items 14 to 17 of Schedule 2);
  • remove the requirement that an order cheque be expressed 'to or to the order of'. Proposed subsection 3(1A) gives examples of what is meant by 'to or the order of" (Item 2, 3 and 4 of Schedule 2);
  • remove the capacity to convert a bearer cheque into an order cheque (Items 5 and 6 of Schedule 2);
  • provide that where a payee or indorsee on an order cheque is misdescribed, the payee or indorsee may indorse the bill as described, adding the person's proper signature at the person's discretion (Item 8 of Schedule 2);
  • replace the expression 'prior indorsers' and the expression 'the drawer and prior indorsers' with the expression 'prior parties' (Item 9 and 10 of Schedule 2);
  • provide that the obligation to pay imposed by subsection 67(1) is without any prejudice to such, if any, contractual, statutory or common law rights that the drawee institution may have to debit its customer's account with the amount of the cheque (Item 18 of Schedule 2); and
  • require a drawee institution to retain only originals or copies of paid cheques (Items 19 to 23, 25 and 26 of Schedule 2).(10)

Schedule 3 of the Bill proposes consequential amendments to the Bills of Exchange Act 1909 and the Debits Tax Administration Act 1982 (Cth).


Concluding Comments

The Explanatory Memorandum to the Bill states that the proposals in the Bill have adopted some comments and suggestions made on a draft bill which was released for public comment on 12 February 1998.

The Bill whilst implementing the recommendation of the Wallis Report to extend the range of institutions on which cheques may be drawn, also advances the principles of competitive neutrality under the national competition policy proposed by the Hilmer Report and supported by the Competition Principles Agreement.

It remains to be seen whether the proposed measures will accelerate cheque processing times and accessing of funds credited by cheque. The current problems in regard to these matters were highlighted in the Wallis Report as follows:

Since 1994, Australian Payments Clearing Association (ACPA) has pursued a project to accelerate the cheque clearing process. The objective is to improve the efficiency of paper clearings by replacing the physical presentment and dishonour of cheques with electronic messaging. Under current arrangements, cheques can take up to eight days to clear, with an average of four to five days. APCA expects that electronic transmission of details of cheques will reduce the clearing cycle to an average of three days. Most DTIs have arbitrary rules preventing retail and small business customers from accessing funds credited by cheque for a number of days (usually four or five) regardless of whether funds have actually been cleared. The Inquiry considered that customers should have immediate access to funds which have been actually cleared.(11)

The Regulation Impact Statement proposes that a joint review of the measures in the Bill if enacted, by the Treasury and the Reserve Bank of Australia, be undertaken 5 years after its commencement.(12) Such a review will meet the Commonwealth's obligations under the Competition Principles Agreement to review and reform regulations that restrict competition. It may also be the occasion to examine whether the physical movement of cheques between institutions could be obviated by new technology and whether more could be done to accelerate the accessing of funds.


  1. Financial System Inquiry - Final Report (March 1997) - Chairman Mr Stan Wallis. The FSI and the FSI Report are popularly referred to as the Wallis Inquiry and Wallis Report.
  2. The package of Bills is as follows:

    Australian Prudential Regulation Authority Bill 1998

    Authorised Deposit -Taking Institutions Supervisory Levy Imposition Bill 1998

    Authorised Non-Operating Holding Companies Supervisory Levy Imposition Bill 1998

    Financial Institutions Supervisory Levies Collection Bill 1998

    Financial Sector Reform (Amendments and Transitional Provisions) Bill 1998

    Financial Sector (Shareholdings) Bill 1998

    General Insurance Supervisory Levy Imposition Bill 1998

    Life Insurance Supervisory Levy Imposition Bill 1998

    Payment Systems (Regulation) Bill 1998

    Retirement Savings Account Providers Supervisory Levy Imposition Bill 1998

    Superannuation Supervisory Levy Imposition Bill 1998.

  3. Bills Digest on the Australian Prudential Regulation Authority Bill 1998.
  4. Ibid., paragraph 9.3.3, 391.
  5. Ibid., Recommendation 66, 393.
  6. Ibid., Recommendation 66, 393.
  7. Explanatory Memorandum to the Bill; paragraph 2.2; 3 and paragraph 7.14; 19.
  8. Ibid., paragraph 7.15; 19.
  9. Ibid., 25-30.
  10. Ibid., paragraph 5.1; 13-14.
  11. Financial System Inquiry - Final Report (March 1997); 391-392.
  12. Ibid., paragraph 2.23; 7.

Contact Officer and Copyright Details

Bernard Pulle
6 May 1998
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

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ISSN 1328-8091
© Commonwealth of Australia 1998

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Published by the Department of the Parliamentary Library, 1998.

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