Mr. Chair, thank you for the opportunity to address you. I'm the COO of VisionCraft Development.
Nationally VisonCraft supports corporations large and small with a cheque system, EFTs, positive pay, and fraud audits. Today I am speaking with respect to the cheque-scanning portion of Bill C-37 and the Canadian Payments Association 006 standard.
There is a great deal of material, so forgive me if I don't go in depth with each item.
First of all, I should mention that we are non-partisan and we are revenue-neutral with respect to Bill C-37, so we may even be in a position to reap windfall profits with this legislation. I am speaking from my daily experience of implementing the CPA 006 and from my experience as a cheque designer.
Overall, we are not against the concept of imaging cheques except that there appears to be little benefit to consumers, be they individuals or corporations, or to those currently employed in moving the cheques across the country, who we expect may face job losses as the physical flow of cheques stops.
As the CPA 006 standard is currently implemented, consumers are being subjected to excessive cost and risk, and we see these increasing in the future. The portion that dealt with cheque scanning in Bill C-37 is one page. The equivalent U.S. legislation, which is generally called Check 21, is 18 pages plus a 144-page final rule, which provides recourse to consumers in the face of mistakes and losses caused by scanning. Check 21 does not require scanning or truncation of cheques. It is voluntary.
Substitute cheques in the U.S. have two warranties and an indemnity that they carry with them. This warranty is that the cheque is properly prepared and not to be paid twice, and the indemnity continues for one full year from the date the injured party learns of the loss. Bill C-37 on this topic provides no equivalent indemnity.
We also believe that the new physical cheque layout needlessly exposes individuals and corporations to a future of rampant fraud. The CPA 006 standard requires the removal of about 17 out of 34 of the most effective fraud features from cheques, exposing individual consumers, but more particularly businesses of all sizes, to highly increased fraud.
The banks are acting as a cartel in this matter, and no one is being given a choice. This is directly in contravention to what's happening in the U.S., where the universal commercial code requires that all cheque issuers put as many fraud features as possible on their cheques or they risk liability should a fraudulent cheque be passed.
It doesn't take a rocket scientist to understand that if there is increased fraud, there is increased liability. The banks are responding to this by attempting to reduce their liability for fraudulent cheques by not accepting responsibility for checking any feature on a cheque not detailed in their contract with their clients.
This was expressly discussed on the CPA site in early December 2006. For example, regarding double signatures, say a company has a rule that any cheque they issue over $10,000 must have two signatures and the cheques even say on them, “must have two signatures”. The cheque arrives at your bank, and it has only one signature and it is over $10,000, and thus obviously fraudulent. The bank would not accept any responsibility for cashing the fraudulent cheque unless the rule was detailed in the client's contract with the bank. This also extends to warning bans where, if it says on your cheque, “the background of this document is blue” and the cheque comes in and it's grey, obviously it's a fraudulent cheque. But if the background of this document is blue, and it is not in your contract with the bank, the bank is going to disavow any responsibility for cashing the fraudulent cheque.
The problem with this is that individuals and small entities will not be able to renegotiate their contracts with the banks, and they have no recourse. They cannot change the banks. All banks have the same rules for CPA 006.
So what happens if your company experiences increased fraud? If you are a company, your options are limited to buying new services from the banks. There is no recourse if you are an individual consumer.
So EFTs and positive pay are two options that a corporation could purchase, but neither is cheap. In addition, if fraud liability substantially increases the risk to the bank and costs them money, then we expect to see liability limits in the bank contracts. In other words, you have a $30,000 per cheque per occurrence for fraud in your account. When—