Standing Committee CCHEQUES BILL
4th February 1992
HOUSE OF COMMONS
Standing Committee C
Tuesday 4 February 1992
CLAUSES 1 to 4 agreed to.
BILL to be reported without amendment.
Committee rose at ten minutes to Eleven o'clock.
Members who wish to have copies of the Official Report of Proceedings in Standing Committees sent to them are requested to give notice to that effect at the Vote Office.
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not later than
Monday 10 February 1992
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The Committee consisted of the following Members:
Chairman: Sir Anthony Meyer
Amos, Mr. Alan (Hexham)
Coombs, Mr. Simon (Swindon)
French, Mr. Douglas (Gloucester)
Gregory, Mr. Conal (York)
Jones, Mr. Martyn (Clwyd, South West)
Kirkwood, Mr. Archy (Roxburgh and Berwickshire)
Maples, Mr. John (Economic Secretary to the Treasury)
Meale, Mr. Alan (Mansfield)
O'Hara, Mr. Edward (Knowsley, South)
Redmond, Mr. Martin (Don Valley)
Roe, Mrs Marion (Broxbourne)
Squire, Mr. Robin (Hornchurch)
Summerson, Mr. Hugo (Walthamstow)
Thompson, Mr. Patrick (Norwich, North)
Wareing, Mr. Robert N. (Liverpool, West Derby)
Williams, Mr. Alan (Swansea, West)
Mr. R. J. Rogers, Committee Clerk2 3 Standing Committee C Tuesday 4 February 1992
[SIR ANTHONY MEYER in the Chair]
Question proposed, That the clause stand part of the Bill.
Mr. Conal Gregory (York): I am grateful to you, Sir Anthony, for chairing this important stage—the Report stage—of the Bill. The aim of the Bill is to implement the wishes of all those who, in the course of everyday life, write cheques and who wish their money to end up in the account of a named payee and no one else. In dealing with this Report stage—
The Chairman: Order. This is the Committee stage.
Mr. Gregory: I apologise—it was a slip of the tongue. Cheque fraud is increasing. In 1989, £18.8 million worth of cheques were fraudulently cashed and by 1990 the figure had risen to a staggering £34.3 million. The scale of the problem is caused in part by the ease with which the proceeds of a stolen cheque may be credited to another account. Once a thief has intercepted a cheque—often because it was visible through a window envelope—that is payable to, say, a Mr. Bloggs, all that he need do is sign "A. Bloggs" on the back, thus endorsing its payment into his, or anyone else's, account. Contrary to widespread belief—indeed, several hon. Members hold that belief—there is currently no form of words that can guarantee in England or Wales that the proceeds of a cheque will end up in the account of a named payee. I see that the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), who has raised the matter with me, is present and I can tell him that there is no such guarantee in Scotland either.
Mr. Patrick Thompson (Norwich, North): Will my hon. Friend explain the present situation? If a cheque is crossed and suitably endorsed, what does that mean?
Mr. Gregory: My hon. Friend is expressing the common belief that it is possible to ensure payment to the person for whom the cheque is intended, but unfortunately the words "account payee only" or "a/c payee only" written across the cheque do not have legal validity, even if the clearing bank providing the cheque were to print those words across it. That is the important point. Until the law is 4 amended, an individual or a company writing such a cheque is not protected in law—indeed, the Inland Revenue has lost several million pounds in that way. That is why the Bill is necessary. Certain crossings may prompt the clearing banks to pay some compensation if the cheque ends up in the wrong account. There have been many examples of that. One such was drawn to my attention by my hon. Friend the Member for Gloucester (Mr. French), who sends his apologies for being absent today as he is on other parliamentary business. There was a problem in connection with the Golden Dragon restaurant in his constituency, where a cheque was written on 18 September 1991 for £40 in favour of Kitchen Clean Services. The cheque was cashed through one of the major clearing banks—the National Westminster Bank—in Twyford near Reading in Berkshire and was not paid to the account of the company. A fraudulent signature had been written on the back of the cheque. That is just one of the many individual cases that have been drawn to my attention during the passage of this small but important Bill. The Bill changes the Bill of Exchange Act 1882 by giving legal power to the words "or order" or "not transferable" in so far as they relate to "account payee only". The Bill establishes a sure means of making cheques non-transferable, giving legal status to the words "account payee" on a cheque, as recommended by my hon. Friend the Economic Secretary to the Treasury. I am delighted that he has joined us in Committee. The Treasury's White Paper, "Banking Services: Law and Practice", published in March 1990, made such a reommendation. Owing to the pressure on Government time, the Treasury has not so far been able to introduce a Bill to enact that recommendation. If a cheque is crossed in accordance with the provisions of the Bill and is paid into the incorrect bank account, the collecting bank will be unambiguously liable and will have to compensate the rightful owner accordingly, unless it can show that it was not negligent. One significant change may have been misunderstood by some parts of the national media. If, for example, an invalid lady or gentleman wrote a cheque with "account payee only" or "a/c payee only" on it and wanted to pay Mr. Bloggs, the grocer in the high street, he or she could do so by endorsing the back of the cheque, by arrangement with the clearing bank. Special arrangements could be made with the clearing bank so that cheques could be endorsed in that way, but that would be by exception. The Bill has widespread support. I am delighted that not only many of my hon. Friends, but hon. Members from other parties, support it. It also has the support of the Consumers Association, which greatly assisted me with the drafting, the National Consumer Council, the Scottish Consumer Council, the General Consumer Council for Northern Ireland, the Banking Ombudsman, whose recommendations the Bill would fulfil, the Building Societies Association, the Law Society and the Law Society of Scotland, the Association of Corporate Treasurers—with some caveats—and the flying squad of the 5 Metropolitan police, whom I always like to have on my side. With and on behalf of those bodies, I commend the Bill to the Committee.
The Economic Secretary to the Treasury (Mr. John Maples): Like many other Members, I have been labouring for years under the delusion that writing "account payee only" on a cheque and crossing it would ensure that it could wind up only in the account of the person to whom it was paid. The Jack committee brought home to all of us who had been under that misapprehension the fact that that was not so. My hon. Friend is to be congratulated on sorting the matter out. The Jack committee report contains recommendations for amending several aspects of banking law. In the White Paper the Government undertook to implement them, but unfortunately we have not yet been able to find time. The Bill deals with one of the most pressing problems and clarifies an aspect of the law that most people thought was clear—until it emerged that the wording had no legal validity. I congratulate my hon. Friend on dealing with the technical amendment to banking law identified by the Jack report as the most pressing.
Mr. Patrick Thompson: I want to raise two points which a member of the Committee—perhaps my hon. Friend the Member for York (Mr. Gregory)—may be able to answer. First, it was said that if Mrs Bloggs wanted her cheque to finish up in the account of her local butcher, she could countersign the cheque by arrangement with the bank and it could be paid into her butcher's account. It is not clear to me how that would be achieved. She could change her mind, say that that was not what she had meant, and claim the money back. I would be grateful if my hon. Friend the Member for York or the Minister would explain how that problem could be avoided. There would have to be more than an informal arrangement with the bank. Secondly, what would happen if people had identical names? No address is shown on a cheque, so if there were a Mr. J. Bloggs of one address and a Mr. J. Bloggs of another address, there would be no means of knowing which of their accounts the cheque was to be paid into. There may be simple answers to both points and I would be grateful if they could be clarified before the debate is concluded.
Mr. Martyn Jones (Clwyd, South-West): I rise not to delay the Committee but to commend the hon. Member for York (Mr. Gregory) for producing a small but succinct and valuable Bill. Two years ago, he helped me with my Consumer Guarantees Bill which involved about eight Committee sittings, and he was present at every one. That, too, was a valuable piece of consumer legislation. As the Minister said, the hon. Gentleman's Bill will be useful. Like many in this country, I thought that "account payee" was a guarantee of safety for cheques but, apparently, that is not so. As the hon. Gentleman said, cheque fraud amounts to £18.8 million. The Bill should be commended to the House and I am sure that it will reach the statute book.6
Mr. Archy Kirkwood (Roxburgh and Berwickshire): I want to ask the hon. Member for York (Mr. Gregory) two brief questions. He has done the House a signal service in presenting the Bill. I am a simple, provincial Scottish solicitor and I have been writing "account payee" across my Bank of Scotland cheques for 20 years. Luckily, none of them has bounced and I hope that that will continue until the Bill becomes law. Will the hon. Gentleman say a word about Scotland? He gave assurances, and I understand that clause 1 would relate to Scotland, but if he would make that clear I should be grateful. The Treasury Minister was on and off his feet so quickly that I had no chance to ask him an important question, although it does not relate directly to the content of the Bill. If this Parliament were to be brought summarily to a close for good and onerous reasons, are there any Treasury assurances that the Bill could be included in any wrap-up agreements across party boundaries and taken precipitately through its parliamentary stages before the present Session is brought to an end? I fear that this and other private Members' Bills may fall victim as a result of this Parliament being ended sooner rather than later. I know that there are ways of ensuring this because in 1987 I managed to get through a private Member's Bill on Freedom of Information. Using good offices and good will on all sides, it is possible to push through non-contentious legislation, so I hope that the hon. Member for York is alive to that problem and is regarding the Bill in that light. Perhaps he can tell the Committee whether he has obtained assurances which may make the difference between getting the Bill enacted or not.
Mr. Hugo Summerson (Walthamstow): I commend my hon. Friend the Member for York (Mr. Gregory) for having introduced the Bill, which will be a valuable measure. How much will the Bill cost? As one who runs an overdraft on occasions, obviously I have to pay bank charges. I imagine that the Bill will result in costs to the banks and that they will seek ways of passing them to their customers, so I should be grateful if my hon. Friend would tell us what those costs are likely to be.
Mr. Gregory: I have faced a battery of questions, so I can sympathise with Ministers who find themselves in my position. I shall attempt to answer those inquiries. My hon. Friend the Member for Norwich, North (Mr. Thompson) is an assiduous attender of such Committees, and he referred to the example that I cited of a lady who had fallen ill and wished to buy groceries from a shop in the high street. He made the important point that the Bill will not outlaw her endorsement of a cheque. I reiterate that, in those circumstances, the lady would need to arrange with her clearing bank that it should accept that specific cheque. If she had written on the cheque account 7 "payee only" or "a/c payee only", under that arrangement she would still be protected. In the unlikely event that the cheque was dropped between the helper leaving Mrs Bloggs and arriving at the grocers, negligence would not apply, as they had clearly acted in good faith.
Mr. Patrick Thompson: I do not wish to delay proceedings, but it is important to know whether the Bill provides for a formal written arrangement to be made with the bank or whether it will simply be a matter of telephoning the bank manager and saying that the cheque to the grocer should be accepted. Perhaps the matter is already clear under the Bill but, not being a lawyer, I cannot analyse it to see whether that is so. Will my hon. Friend explain whether a written arrangement with the bank will be required?
Mr. Gregory: Under the Bill, the bank would have the liability in respect of that cheque and an informal arrangement would have to be made. We cannot write into law informal arrangements of this nature. Nevertheless, a bank would be happy to comply with such a request.
Mr. Alan Williams (Swansea, West): Although what the hon. Member for Norwich, North (Mr. Thompson) is saying is interesting, all he is describing is a situation that most of us have lived with and thought was legal until a bank challenged the validity of such a crossing. Most bankers consider that the Bill will just return us to the position with which we have lived all our adult lives.
Mr. Gregory: I am grateful to the right hon. Member for Swansea, West (Mr. Williams) who, as always, has put his finger on the nub of the issue. After the Bill receives Royal Assent, the issue of negligence will be clear. It would be up to the bank 8 whether it required a written note or a telephone call from the invalid. A private transaction would be made between her and the bank. If the bank required that to be proposed and seconded by the lady's neighbours, it would be a matter for the bank. If the cheque was dropped in the high street on the way to the grocers, the bank would be liable. At present, the bank is not liable. We must bear in mind the millions of cases of fraud and the enormous sums of money that are involved. The Bill will protect both individuals and companies. I thank the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) for his kindness in saying that I have done the House a signal service. I confirm that the Bill will apply not only to England and Wales, but to Scotland and Northern Ireland. At present, individuals and companies using cheques are not adequately protected. Despite the hon. Gentleman's legal expertise, he, like many of us without such qualifications, recognises that he is not protected. The hon. Member for Clwyd, South West (Mr. Jones) asked whether the Bill had Treasury support. It would be up to my hon. Friend the Economic Secretary to say a word about that. Given the Bill's all party support and the support of organisations outside the House, such as the Retail Consortium, which includes members of the Cooperative Union and the Mail Order Traders' Association, I hope that the Bill can proceed through the House.
Question put and agreed to.
Clause 1 ordered to stand part of the Bill.
Clauses 2 to 4 ordered to stand part of the Bill.
Bill to be reported, without amendment.
Committee rose at ten minutes to Eleven o'clock.
THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:
Sir Anthony Meyer (Chairman)
Jones, Mr. Martyn
Thompson, Mr. Patrick
Williams, Mr. Alan