HL Deb 06 May 1974 vol 351 cc347-8

Facts. The P Bank decides to issue cheque cards to its customers under agreements providing for the Bank to honour cheques of up to £30 in every case where the payee has taken the cheque in reliance on the cheque card, whether the customer has funds in his account or not. The P Bank writes to the major retailers advising them of this scheme and also publicises it by advertising. The Bank issues a cheque card to Q (an individual), who uses it to pay by cheque for goods costing £20 bought by Q from R, a major retailer. At the time, Q has £500 in his account at the P Bank.

Analysis. The agreement under which the cheque card is issued to Q is a consumer credit agreement even though at all revelant times Q has more than £30 in his account. This is because Q is free to draw out his whole balance and then use the cheque card, in which case the Bank has bound itself to honour the cheque. In other words the cheque card agreement provides Q with credit, whether he avails himself of it or not. Since the amount of the credit is not subject to any express limit, the cheque card can be used any number of times. It may be presumed however that section 10(3)(b)(iii) will apply. The agreement is an unrestricted-use debtor-creditor agreement (by section 12(c)). Although the P Bank wrote to R informing R of the P Bank's willingness to honour any cheque taken by R in reliance on a cheque card, this does not constitute pre-existing arrangements as mentioned in section 12(c) because section 182(2A) operates to prevent it. The agreement is not a credit-token agreement within section 14(1)(b) because payment by the P bank to R, would be a payment of the cheque and not a payment for the goods.

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