HL Deb 26 February 1992 vol 536 cc343-5

7.56 p.m.

Lord Harmar-Nicholls

My Lords, I beg to move that this Bill be now read a Second Time. The aim of the Bill makes it an ideal candidate for the Private Bill procedure. It fits in extremely well with what was intended when the Private Bill procedure was introduced into our legislature.

The whole purpose of the Bill is to regularise by statute a matter which almost everyone thought was already the case and for decades the system has operated on that basis. I had always thought that by crossing the cheque and putting on it "by order" or "not transferable", I was making absolutely certain that the money could be credited only to the named payee and that if by some manoeuvre the money was paid into somebody else's account I could automatically be compensated by whoever had allowed that to happen at the receiving bank. I always thought and felt quite happy about that, and I believe that that is the case as regards most people.

Many people think that any problem can be overcome by writing "by order" and then writing "not transferable." That certainly gave one some protection if one had to claim compensation but it did not give the protection which this Bill if enacted will give. At present, there is no obligation on banks to check the identity of a person paying in a cheque or to ensure that the signature on the back of an endorsed cheque is genuine. By and large that is done to the best of their ability but there is no obligation and in certain circumstances banks can resist any claims for compensation for the damage done.

The aim of the Bill is to establish a sure means of making cheques non-transferable by giving legal status to the words "account payee" on the face of the cheque. If "account payee" is shown on the cheque, under the Bill that will be sufficient to ensure that the receiving bank takes real trouble to check that the person presenting it is the one entitled to it. If by some carelessness the bank allows it to go through, the bank will be liable to pay compensation and the Bill ensures that there will be little trouble about that.

Out of fairness to the bank, the Bill also makes clear that if by some clever manoeuvring by somebody a cheque is paid into the wrong account and the bank can prove to a court that it has not been negligent and the mistake was not caused through its carelessness or misdemeanour, then it would not pay the full extent of compensation. The main purpose of the Bill is that once passed, when "account payee" appears on a cheque, the bank will be under an obligation to take special steps to ensure that the name on the cheque is the account to which the money is paid.

I do not believe that we need to spend too much time on the matter. The Bill simply reinforces by statute something that most of us thought had always been the situation in any case. It therefore seems to be the commonsense thing to do. Once the Bill is passed, if a cheque crossed "account payee" is paid into the wrong account, the collecting bank will have to compensate the rightful owner, except in the circumstances I have already explained; that is, if it can show beyond peradventure to a court that it had not been negligent and that somebody had cleverly been able to get round the statute. The bank will then have some kind of defence.

I could stretch out the arguments by giving all kinds of detail but that has already been done. Outside the Chamber the noble Lord, Lord Peston, is a friend of mine and I know his views. Inside the House he must be, "the noble Lord", but outside he is my friend. I have already obtained his views. I can say to the House—I have no doubt that he will reinforce it—that on this issue we are as one and there is no problem.

Another point which should be impressive is that the Consumers' Association and the British Bankers Association jointly agree that the Bill is satisfactory and that its proposals are right. The Building Societies Association, the Law Society and even the Flying Squad of the Metropolitan Police see the Bill as satisfactory. That means that we need not spend too much time on the detail.

I anticipate that noble Lords will give the Bill a Second Reading and I hope that it has a speedy passage through all stages. It is timely to do that. In 1989 there were £19 million worth of cheques presented fraudulently; by 1990 that figure had increased to £34 million. That is a solid pound-note reason for doing all we can to straighten the problem out. It is with confidence therefore that I commend the Bill to your Lordships' House.

Moved, That the Bill be now read a second time. —(Lord Harmar-Nicholls.)

8 p.m.

Lord Peston

My Lords, I congratulate the noble Lord, Lord Harmar-Nicholls on what he said in introducing the Bill to your Lordships' House. I am envious of him; it is not everybody who gets the chance to introduce a Bill which will amend the Bills of Exchange Act 1882.

There is nothing more I can add. We are aware how complicated the law on cheques is. I hope that the Bill will do exactly what the noble Lord said; that is, that it will make the law do what we all thought it did. I support it most strongly for myself and my noble friends.

There is nothing controversial in the Bill. I hope that time will be found between now and whenever the election is held to place it on the statute book. Without wearing my usual cynical hat, it is one of the more useful provisions that we have introduced in recent years. I hope that time will be found to place it on the statute book in the next few weeks. I support it most strongly.

8.3 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)

My Lords, I was not aware that the noble Lord, Lord Peston, ever wore a cynical hat. I too join in supporting the Bill and confirm that the Government endorse it. I join my noble friend Lord Harmar-Nicholls in saying that I found the Bill to be somewhat educational. I had always thought that the various scribblings one made on a cheque had some effect, particularly the rather severe amount of scribbling required by the Inland Revenue on cheques made out in its favour. It is rather interesting to be disabused of that idea.

The Bill implements a policy to which the Government are already committed. The Jack Committee recommended that we sort out the legal basis of the various crossings on cheques and the term "account payee" to reduce the scope of fraudulent endorsements. The Government undertook to do that in the White Paper published in March 1990.

There are a number of other measures in the White Paper but it has not proved possible to find time to accommodate them in the Government's legislative programme. The Bill deals with the most pressing problem most effectively. I therefore strongly recommend that the House accepts the Bill as it stands and assists its speedy passage through to Royal Assent.

On Question, Bill read a second time, and committed to a Committee of the Whole House.