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Cheque abolition slammed by Treasury

Select committee report critical of Payments Council’s proposal to abolish cheques and wants return of cheque guarantee cards

The Payments Council was wrong to announce the abolition of cheques in December 2009 and should consider reinstating cheque guarantee cards, the Treasury select committee has said.

Its report, greeted warmly by consumer rights groups, condemned the Payments Council, calling it an industry dominated organisation, which should no longer have the “unfettered power to decide the future of cheques or other payment methods that directly affect millions of people”.

In 2009 the Payments Council announced that cheques would be phased out by October 2018, claiming they were in “terminal decline”. It also abolished the cheque guarantee card scheme from 1 July 2011, meaning it is now no longer be possible to guarantee a cheque up to a maximum of £250 by handing over a card featuring the scheme’s logo or hologram.

In response, the Treasury launched an inquiry in February 2010, saying it would examine the organisation’s structure and performance, including whether it was sufficiently accountable for the way its decisions impact on consumers.

The Payments Council performed a U-turn on cheques in mid-July 2011, ahead of the Treasury select committee report’s publication, claiming it would not seek to kill them off. In the final report, the select committee’s chairman, Andrew Tyrie, has called for the Payments Council to be regulated, recommending that banks send it “advance sight of any material related to the future availability of cheques that the banks send to their customers”.

Tyrie’s report also recommends that all banks be required to write to their customers stating that cheques will continue to be in use for the foreseeable future, that the Payments Council should examine the reintroduction of the cheque guarantee card, and changes be made to the composition of the board of the Payments Council to strengthen the voice of consumers.

Tyrie said: “Cheques have been saved, for the moment, but we need to remain vigilant. The incentives for the industry to get rid of cheques has not gone away. Neither have we.

“The Payments Council is an industry dominated body with no effective public accountability. Its decision caused great and unnecessary concern among bank customers. And during the course of the Treasury committee’s inquiry it became clear that the Council’s plans did not have the confidence or support of the public, parliament or the government.”

He added: “The decision of the Payments Council [to abolish cheques] was taken without an assessment of the costs and benefits and without providing any indication of what alternatives to cheques would be put in place. Banks have also given many customers the impression that the abolition of cheques was a foregone conclusion. This type of behaviour is unacceptable and cannot be allowed to continue.”

Consumers groups have welcomed the report. Sarah Brooks, director of financial services at Consumer Focus, said: “We echo the committee’s calls that cheques must not face an unmanaged decline. While use may be declining, around two-thirds of people still cash and write cheques, with over a billion processed every year.

“Payment systems can be seen as a utility in the same way as the railway network or National Grid. They should be subject to effective regulation and decision-making to make sure the system works well for everyone who needs them to pay for goods and services.”

Richard Lloyd, Which? executive director, said it was “unacceptable that the Payments Council, as an unregulated, industry dominated body has the power to make unilateral decisions about payment methods that affect millions of people. The structure of the Payments Council now needs to be reviewed, and the voice of consumers strengthened on its board.”

Gary Hocking, acting chief executive of the Payments Council, said the council would look at how it could ensure that consumers received consistent information about payments. He added: “While we don’t believe increased regulation is required, as part of an existing commitment to the Office of Fair Trading, we are due to review our governance arrangements before the end of the year. We will take the select committee’s recommendations particularly on the role of our independent directors into account.”

The financial secretary to the Treasury, Mark Hoban MP said: “In response to public opinion the Payments Council ultimately did the right thing by abandoning its plans to abolish cheques. However, the way they handled this decision does raise questions about the governance of the Payments Council. The Treasury select committee’s report highlights these questions and we will look at its recommendations carefully and respond in due course.”

It is thought the government will back the report’s recommendations when it reports to parliament later this year. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds