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Demand draft

A demand draft, also known as a remotely created check, a tele-check, or check by phone, check by fax or echeck, is a check created by a merchant with a buyer's checking account number on it, but without the buyer's original signature. Check drafting is creating a valid legal copy of the customer's cheque, on the customer's behalf. Because it is created by the merchant, no signature is required. Instead, a signature disclaimer or [1] [2] facsimile is entered in the signature blank. A check draft is typically for deposit only. The Uniform Commercial Code permits the process of check drafting by defining signature in the [3] following regulation: Uniform Commercial Code, Title 1, Section 1-201 (39). This regulation only makes check drafting possible, not "required." Your bank may deny your items for deposit if they have reason to be suspicious. Suspicious items are covered in Regulation CC 229.13, [4] Exceptions. Authorization is indicated on a check draft in the signature blank, usually by a statement such as the following: "This draft is preauthorized by your depositor, no signature required.". Demand drafts are frequently used to purchase items over the phone, from telemarketers. The checks also allow consumers to pay monthly bills by having them debited automatically out of their accounts, [5] rather than having to write a new check each month. Unlike ACH transactions that are governed by NACHA regulations, check drafting allows outbound telemarketers to accept these types of phone payments if they comply with the FTC Regulations 16 [7] CFR 310 in regard to proper record keeping. Demand drafts are frequently used by consumers instead of credit cards, and large companies also [8] commonly use them. Demand drafts are also a popular method for lending institutions to attempt to collect on overdue [9] loans. Demand drafts entail a large potential for fraud. Banks report that demand draft fraud is becoming [5] more common. Under the current Federal Reserve Board guidelines the customer has a time frame of 90 days from the time the check was deposited to dispute the transactions. (www.frbservices.org/operations/checkadjutsments/urcc.html) Demand draft fraud can be frustrating for consumers, because unlike credit card or ACH disputes, consumers are not often given any funds back until after investigation finds that the draft was unauthorized. In addition, filing a dispute frequently requires a notarized signature, since this is the only way one bank can dispute a paper item with another bank. In 2005, the US Federal Reserve issued a regulation (effective July 1, 2006) shifting responsibility for payment of fraudulent demand drafts from the bank it is drawn on to the bank that accepts it as a [10] deposit. Most recent developments in check drafting, which helps to facilitate checks by phone, checks by fax and online check payments is the new "Substitute Check Law" known as Check 21, enacted on [11] October 28, 2004, which has greatly increased the use of check drafting.
[6]

Other Items Considered Demand Drafts


Cashier's check Money order Income Tax Refund Check Insurance Draft Payment Traveler's cheque

[edit]Demand

Drafts in India

In India, a Demand Draft is a cheque that contains an order of one branch of a bank ( Drawer branch ) directing another branch of the same bank ( Drawee branch ) to pay on demand a certain sum of money to a specified beneficiary ( Payee ) . It is an Account payee instrument, meaning it can only be credited to the account of the payee and cannot be encashed over the counter by the payee. A Demand Draft is a much safer and certain method of payment than cheques, since in the case of cheques, an individual is the drawer and hence the cheque can be dishonoured by the drawee bank due to insufficiency of funds in the drawer's account. But since in the case of a DD, the drawer is a bank, payment is certain and it cannot be dishonoured. The university requires payment of the application fee to be done through a secure means, like a DD. In this case, the student would apply to his bank to get a DD issued favouring Delhi University. Suppose the student resides in Mumbai. Suppose he holds an account in a particular branch of SBI in Mumbai. In this case, this particular SBI branch in Mumbai would be the Drawer branch, a SBI branch located in Delhi ( typically the Service Branch ) would be the Drawee branch and Delhi University would be the payee. Since it is a cheque issued by a bank ( that is, drawer is a bank ) it does not carry the signatures of the customer, unlike the case of ordinary cheques which carry the signature of the customer ( who is the drawer ). Instead, a DD carries signatures of one or two bank officials, depending on the DD amount. Usually the DD will carry the name/code of the Drawee branch and of the Issuing ( Drawer ) branch both. The placements of this varies from bank to bank. Pay Orders, also called Local DDs or Bankers' cheques, are cheques where the drawer and the drawee branch is the same. These are used for local payments ( that is, payments within a city ) An applicant for a Demand Draft is required to fill in a DD Request Slip, mentioning the amount, payee's name, issuing branch, location the draft should be payable at, his name, signature and account number etc. In most cases, the purchaser of the draft is an account holder with the bank, hence he can authorise the bank to debit ( that is, take out funds from ) his account either through a Cheque or a debit mandate. The Cheque should be drawn in favour of " Yourself for the issue of DD favouring XYZ ", where XYZ refers to the payee of the DD. The bank levies charges for the DD, in the form of a commission. Hence the customer has to pay an amount equal to ( DD amount + Commission + Service Tax ). DDs can also be issued against the payment of cash by the purchaser, but in this case, the total amount ( inclusive of commission and taxes ) should not exceed Rs. 49,999.

Since a DD is kind of a cheque, the principle of Cheque Clearing also applies to DDs. In the example mentioned above, if the payee, Delhi University does not hold an account with SBI, but with another bank,say PNB, it would deposit the cheque in its PNB branch and the PNB officials would lodge the DD in outward clearing. ( The DD would be sent to the local Clearing House ).

Demand Drafts India

A sample demand draft Source: Yes Bank

Demand Drafts in India


The Demand Draft is an instrument used to transfer payments from one bank account to another. Demand Draft also is like cash, but much more secured than cash. Some secured features are:

Extremely unlikely to be stolen and used No chance of fake notes circulating in India Can be encashed only by the person on whom it is issued Can be easily carried, no threat to life due to robbers when carried Can be safely sent by courier or post Can be easily cancelled Sender can be easily identified

It is quite popular instrument. Also it's the preferred method of payment for applying any admission in institutes, paying fees, applying for subscriptions etc.

The method of filling a Demand draft

We have to provide certain information to the bank for buying a DD. For this we need to fill in an application-form which asks for the following information: * The type of DD needed. * The mode in which the money is paid i.e. through a bank account or in cash or cheque. * The mode in which you will pay money to the bank i.e. by debiting to your account or by cash. * The concerned place where the money is to be paid. * Name of the recipient. * The amount. The Demand draft for the amount will be provided by the counter clerk when we present the application form along with the cheque on our account or if cash is deposited for the same amount. Note: Some bank allow only customer to issue Demand Drafts. Things to be noted while handling a Demand Draft. 1. The particulars like the name of the beneficiary, amount, and the place where payable etc. in the DD should be the same as what we have filled in the application form. 2. The spelling of the beneficiarys name should be exactly the same. 3. We must get the Demand Draft crossed for security. 4. If the DD amount is more than Rs. 50,000 then the PAN number will be necessary. 5. The charge for taking a demand draft varies with the bank. If we have to take the DD for a large sum then it is better to reach for the bank which charges less. Now a days DD can be ordered online too. This facility can be availed if you have online access to your bank accounts. If you are an NRI you can avail this facility. Useful links(demand draft charges):

ICICI Bank DD ICICI Bank DD charges HDFC Bank Demand Draft faq SBI Demand Draft PNB DD charges

Comfort of Ordering Demand Draft


In India currently it is somewhat difficult to order DD's. You'll have to stand in long queues, especially if you going to any PSU banks like SBI. Be ready to shell you 1-2 hours in PSU banks in India. There no online services to the comfort of ordinary public who can order small amount demand drafts and send it instantly. However banks have started giving online DD ordering facility. But it is cumbersome.

Charges
Currently charges for Demand Draft vary. However among private sector banks it is competitive. DD's in the higher range cost you Rs 2/per 1000 Rupees of DD made. If you order DD through internet it'll cost less than ordering from the bank clerk in the private banks, but you'll need to pay the courier charges. If you're having account with SBI and ordering through internet then it is coming out to be cheapest amount all banks. I've an ICICI bank salary account and they are giving up Rs. 25000 DD per month free of cost. Also some banks charge you extra buck if you are not a bank account holder. In general lowest cost of DD will not be less than Rs. 50.

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