HL Deb 26 November 1996 vol 576 cc198-200

7.45 p.m.

Lord Mackay of Ardbrecknish rose to move, That the draft order laid before the House on 28th October be approved [3rd Report from the Deregulation Committee].

The noble Lord said: My Lords, this order removes unnecessary and outdated restrictions on banks which go back to the last century. It will enable them to get the full benefit of the latest computer technology and save them millions of pounds in processing costs. Under the Bills of Exchange Act 1882, the bank at which a cheque is paid in—the collecting bank—has to send it back to the branch on which it was drawn to get payment for its customer. That was the established system when the 1882 Act was passed, and it is still the system today, even though modern technology offers quicker and cheaper alternatives. Today, the essential details of a cheque are recorded electronically at the collecting bank and transmitted to the paying bank. But the law still requires the paper cheque to be sent back to the paying branch, even though this is no longer necessary for clearing.

The core provision of the order, Article 4, amends the 1882 Act to allow notification of the essential features of a cheque by electronic data to be sufficient to obtain payment. This will allow banks and building societies to retain cheques at an earlier point in the clearing cycle instead of having to send them to the paying branch.

There are two ancillary provisions. The first, in Article 3, allows banks or building societies which still want to have customers' cheques returned to opt for them to be sent to a central office instead of the individual branches. The second, in Article 5, amends the 1957 Cheques Act to allow an authenticated copy of a paid cheque the status of a receipt. All these reforms were recommended by the 1989 Jack Committee on Banking Services and accepted by the Government in the 1990 White Paper. Use of the Deregulation and Contracting Out Act allows us to give them effect.

The reforms covered by this order will relieve banks and building societies of a significant burden of cumbersome paper work and enable them to offer a more cost-effective and efficient service to their customers. At the same time, the necessary protections for the banking public will be maintained. Banks will continue to scrutinise cheques in cases of suspected fraud. Bank customers will continue to be able to stop cheques, to have them returned on a regular basis, or to see a specific cheque should a dispute arise. There will be no change in customers' legal rights of redress if banks fail in their duties towards them.

The Government are determined to cut red tape and help businesses to prosper. This deregulation order is an important measure in pursuit of that policy, and I commend it to your Lordships.

Moved, That the draft Order laid before the House on 28th October be approved [3rd Report from the Deregulation Committee.]—(Lord Mackay of Ardbrecknish.)

Viscount Chandos

My Lords, I thank the noble Lord for his clear explanation of this short order. Although it seems that he and his colleagues have been on the Benches opposite for a very long time, even those on these Benches cannot blame them for any of the shortcomings in the Bills of Exchange Act 1882. We welcome the proposals contained in the order. We were pleased to note that the Deregulation Committee had strengthened the protection of consumers in relation to notices dishonouring cheques. We feel that the position has been strengthened compared with the original draft.

I should like to ask the Minister one question relating to the principle of the attachment of funds, which was raised by the Deregulation Committee. The report says that the Treasury has concluded that the funds-attached rule cannot be amended by an order under the 1994 Act. Is the Minister confident that the position in Scotland in terms of cheque truncation is as secure and safe as he would like and as secure and safe as the position in England?

The Minister referred to the fact that these provisions were recommended by the Jack Committee in 1989. Seven years seems a long period that the banks have had to wait before an efficient and electronic system could be introduced. I wonder whether the Minister can give any indication as to why it has taken so long. Subject to those two small caveats, we commend the order to the House.

Lord Mackay of Ardbrecknish

My Lords, I am grateful to the noble Viscount for his welcome for this order. It is high time that the 1882 Banking Act was reformed. The idea of lorryloads of cheques traversing the country throughout the night from one set of banks to another in this modern day is long past its sell-by date. I suspect that the reason why it has taken some time is that we had to wait for the deregulation legislation to come in. Then of course we had to go through all the processes laid down in that Act before we reached what I might describe as the final phase this evening.

The noble Viscount asked me about the legal principle known as attachment of funds, which he suggested might complicate cheque truncation in Scotland. The Scottish Office has informed us that after an exhaustive legal analysis it concluded that fund-attached rules cannot be amended by an order under the 1994 Act. We are advised that the source of the problem is that it relates to Scots common law and not statute. But the powers available under the 1994 Act extend only to the amendment of statutory provisions and not common law provisions.

Any reform will require primary legislation, and so obviously a suitable Bill will have to be found. That of course presents some difficulties. My understanding is that being unable to tidy up that aspect will not cause a great problem to Scottish legislation. The noble Viscount's concern will not be justified. Perhaps I may thank him for not blaming me for the 1882 Act. After the past two days at this Dispatch Box, I feel that I am being blamed for almost everything else. I am extremely grateful to him for his support. This is a sensible measure which allows the banks to move with the times and has to be in the interests of all of us who are customers of the banks as well as the banks themselves.

On Question, Motion agreed to.