§ Mr. Michael Hirst (Strathkelvin and Bearsden)
I beg to move,That leave be given to bring in a Bill to amend the Bills of Exchange Act 1882 to introduce similar procedures in relation to stopped cheques and to cheques drawn on an account with insufficient funds in Scotland as apply in England, Wales and Northern Ireland.
I wonder how many hon. Members have threatened to stop a cheque in the course of a dispute that they have had with a trader. I have threatened to stop a cheque but have never done so, which is perhaps just as well because such a thing can have unpleasant and unintended consequences in Scotland.
This matter was brought to my attention by a constituent who countermanded a cheque in the course of a dispute with one of his suppliers. He then found to his dismay that the value of the cheque was charged to his account and an equivalent sum was transferred by the bank to a suspense account. The funds effectively were frozen and, worse still, earned no interest during the time that they were held in suspense.
My constituent drew this matter to my attention, challenging me to find out whether his perception of the law was correct. My researches confirmed that his bank was correct and was acting strictly in accordance with the law of Scotland. The Bills of Exchange Act, which was enacted 102 years ago, included a provision that applied only to Scotland. Under that provision, when the customer of a Scottish bank countermands a cheque, the value of the cheque is charged to his account and an equivalent sum is put into a suspense account at the bank. The funds can be unfrozen only with the consent of the trader or payee to whom the cheque was originally made out, by an expensive and time-consuming legal process, or, finally, after a five-year prescriptive period. During that time, no interest is earned on the frozen funds.
There are numerous distressing examples of the operation of that legal anomaly. The trader's consent to unfreeze the funds can sometimes be unjustifiably withheld, especially where there may have been a history of an acrimonious trade dispute. Those affected by the provisions have frequently complained that they knew nothing about it, nor were they advised by their bank of the consequences of stopping the cheque.
I hope that I am not being unjust to the Scottish banking fraternity when I say that I have a suspicion that some bank managers may not be aware of the provision, or that they may not enforce it. Nevertheless, that anomaly, first put on the statute book by this House 102 years ago, remains and is the substantive law in Scotland.
My Bill seeks to eliminate what is obviously an anomaly that prejudices Scottish people. It seeks to bring the law into line with that operating elsewhere in the United Kingdom — which is that when a cheque is stopped no payment is made against the cheque out of the customer's account and the funds remain in that account.
I must make it clear that in the event of a cheque being countermanded under the provisions in the Bill there would be no alteration to the fundamental obligation between trader and customer, and legal remedies would be available to the trader against a dishonest consumer. It 889 could be argued that the existing system in Scotland has prevented the malicious stopping of cheques, but I am at pains to suggest that there can be little validity in that argument as so few Scots appear to be aware of the precise legal implications of stopping a cheque. I must confess that, even though I have legal and accounting qualifications, I was unaware of that legal provision. I consulted one of my hon. Friends who practises as a lawyer in Scotland, and he was similarly unaware of the provision. There is no evidence that the freer system that operates south of the border has led to any abuse by malicious or dishonest consumers.
There is a further unfortunate consequence of the legal provision which, as section 53(2) of the 1882 Act, applies only in Scotland. If a customer draws several cheques at the same time and does not have sufficient funds in his account to meet the total of the cheques, the bank cannot pay out on some of the cheques up to the balance in the customer's account. Instead, the bank is obliged to refuse payment on all the cheques and to transfer whatever balance is in the customer's account to a suspense account. Again, the suspense account would bear no interest and to unfreeze the account the customer must obtain the consent of each of the traders or payees in whose favour the cheques were originally drawn.
I contrast this cumbersome procedure with the far more simple and equitable procedure which operates in England by which the bank will honour part of a series of cheques up to the value of the funds in the customer's account, subsequently dishonouring only when the account is deficient of funds and can no longer meet any outstanding cheques.
It is, perhaps, surprising that there has not been a greater outcry about this matter in Scotland. Nevertheless, 890 the Scottish Consumer Council has been in the vanguard of the movement for legislative amendment to bring the law and practice in Scotland into line with that of England.
Understandably, Scottish bankers also feel unhappy about the situation. Our predecessors here a century ago could hardly have realised how section 53(2) of the 1882 Act would create problems for bank customers in 1984. The present legal position does nothing for good relations between bankers and customers, and the Committee of Scottish Clearing Bankers has confirmed that it generally supports the intention of my Bill.
I hope that the House will agree that this is a small but significant legislative change which will remove the discrimination that presently exists against Scottish bank customers, and I therefore hope that the House will grant me leave to bring in the Bill.
§ Question put and agreed to.
§ Bill ordered to be brought in by Mr. Michael Hirst, Mr. John Corrie, Mr. Tom Clarke, Sir Hector Monro, Mr. Archy Kirkwood, Mr. Gerald Malone, Mr. Gordon Wilson, Lord James Douglas-Hamilton, Mr. Charles Kennedy, Mr. Hugh Brown and Mrs,. Anna McCurley.