The UK's chancellor of the exchequer has agreed to the establishment of a new governance body for payment systems, the Payments Industry Association, while a number of reforms to check clearing processes in the UK have also been agreed upon.
The chancellor agreed to the establishment of the association following a recommendation from the chairman of the Office of Fair Trading (OFT). In addition, the Payment Systems Task Force, which is chaired by the OFT, has also announced that agreement has been reached on a number of improvements to the check clearing process that will benefit both consumers and businesses.
The Payments Industry Association will be the new strategic governance body for the payments industry in the UK, and will concentrate on access, innovation and governance issues. Its board will consist of independent directors and directors from the payments industry with an independent chairman, Brian Pomeroy.
The majority of the outstanding work of the Payments Systems Task Force will be transferred to the Payments Industry Association, and the OFT will review the outputs and achievements of the association against its objectives after two years.
Meanwhile, in its newly published report, the Task Force has concluded that a number of significant improvements can be made to current check clearing arrangements. All of these reforms will take effect from November 2007 and will improve users’ experience of the check clearing system, particularly vulnerable consumers, basic bank account holders and small businesses, the report claims.
The OFT, as well as the sponsors of the Banking Code and other Task Force members, will recommend to the independent reviewer that, where appropriate, these changes should be inserted into the Banking Code in March 2008.
The main proposed changes include that money deposited into any account will start to earn interest (in interest-bearing accounts) or will count against overdrafts no later than two working days after the check is deposited.
In addition, all consumers and businesses will be able to withdraw funds deposited by check into current and basic bank accounts no later than four working days after the check is deposited. For instant access savings accounts and those savings accounts from which withdrawals are allowed subject to a penalty, withdrawal will be available no later than the sixth working day after the check is deposited.
Finally, financial institutions will not be able to take money deposited by check back out of an account later than six working days after deposit (‘guaranteed fate’), unless the payee is a knowing party to fraud. Currently, there is no maximum time limit for fate in the UK.
These limits will provide consistency and clarity for consumers, and will bring basic bank accounts fully into line with other types of current account. All checks, regardless of where in the UK they are drawn or paid in, will be subject to the agreed limits. This single UK-wide proposition removes delays on cross-border checks and provides clarity and consistency for UK consumers, particularly those in Northern Ireland.
The Task Force has concluded that there is no case for a complete rebuild of the check clearing system. Research shows that the number of checks in circulation is falling by around 8% per year, and this rate of decline is likely to increase substantially when the new faster payments service becomes available in November 2007. In addition, several major retail groups are either trialing not accepting checks as a payment mechanism at their tills or have stopped taking them altogether.