Electronic Presentment of Instruments (Evidence of Payment and Compensation for Loss) Regulations 2018 — House of Lords, 2018-06-13
Topic: Domestic Commerce
Michael Bates (Conservative, Centre-right): My Lords, payment systems sit at the heart of our economy. They allow money to flow between households and businesses, allowing the prompt and proper exchange of goods and services. The Government are therefore committed to ensuring that the United Kingdom’s payment systems are efficient and meet the needs of end-users, taking advantage of technological developments as they arise Cheques continue to form a vital part of the British payments landscape. While there is no denying that there has been a decline in their use over the years, cheques are still important for many smaller charities, voluntary organisations and those members of our society who are often the most vulnerable. In the first quarter of 2018, more than 65 million cheques were cleared, with a value of over £80 billion. That is an average of 1 million cheques cleared per working day. Before we discuss the new legislation I am presenting to the House today, I shall briefly explain how the current cheque clearing system works. Under the current model, cheques deposited into a bank or building society are transported to their associated processing centre where the essential details are read. Afterwards they are transported to an exchange centre, where the cheques are physically passed to the bank of the customer who originally drew them. Finally, the cheques are taken to the relevant processing centre of the paying bank, which ensures that the cheque is genuine before releasing the funds Under that anachronistic process, it takes six weekdays before a cheque fully clears and the recipient can be certain that the money is theirs. That is why Parliament legislated to allow UK banks and building societies to accept the receipt of cheques and similar instruments by electronic image. The new cheque image clearing system cuts down clearing times to the next weekday by sending a digital image of the cheque for clearing. Cheque imaging will also facilitate further innovation in the industry—for example, by enabling customers to pay cheques through their mobile banking app The purpose of the legislation under discussion today is to ensure that the electronic clearing of cheques has no detrimental impact on cheque users. It makes provision for two measures to achieve this, which will help to protect customers as the image clearing system rollout intensifies over the second half of the year. The first concerns the use of cheques as evidence of payment. Under the current model, a customer can request a copy of the paper cheque that they drew from their bank. This paper cheque can then be used as evidence of payment. To ensure that this right remains available, the measure ensures that a copy of the cheque, along with some additional information, can be provided to the writer of the cheque upon his or her request, and that this copy has the same evidential value as a paper cheque The second measure concerns compensation. In cases of fraud or error, the rules for compensation are set out in scheme rules by the Cheque and Credit Clearing Company. There is, however, no legislation stipulating under what circumstances customers must be compensated, or by whom. To prevent any potential harm for consumers from what is a fundamental change to cheque processing, the Government consider it necessary to legislate to ensure that cheque users are not left out of pocket if they incur a loss The second measure therefore provides that, where a customer incurs a loss under the image-clearing system and prescribed conditions are met, including that compensation has not already been received, the bank of the customer receiving the cheque must pay the compensation. Similarly, if the bank of the customer writing the cheque incurs a loss, where prescribed conditions are met, the recipient’s bank must again provide compensation if none has been forthcoming The Government believe that the existing industry-led approach works well. Indeed, the optimal solution is that the legislation need never be used as the scheme rules continue effectively to resolve losses from fraud or error. In summary, the Government believe that the legislation is necessary to ensure that customers can continue to trust that their cheque will be valid proof of payment under the new image clearing system and to provide a backstop for compensation. I hope this is helpful to colleagues and I commend the regulations to your Lordships’ House.