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Ask the team: Are cheques definitely being abolished?
Practical Law UK Legal Update 2-506-5981 (Approx. 4 pages)
Ask the team: Are cheques definitely being abolished?
by PLC Private Client
| Published on 23 Jun 2011 • United Kingdom |
An Ask the team providing an update on the Payment Council's proposal to abolish cheques. (Free access.)
Question
A number of my charity clients are seriously concerned about the proposal to abolish cheques in the near future, as a significant proportion of the donations they receive is made by cheques.
What is the current position? Are cheques definitely being abolished?
Answer
In brief
The Payments Council (PC) has set 31 October 2018 as a target date for closing the central system for processing cheques in the UK, conditional on there being alternatives to cheques in place that are both acceptable to users and adopted. The chair of the PC has said that such alternatives will include a paper-based system. A final decision will not be made until 2016, when the PC will conduct a major review to decide whether it can go ahead with closing the cheque-processing system in 2018, or whether more time is needed.
The government is closely monitoring the cheque replacement programme and will consider intervening to protect vulnerable individuals and businesses if it feels there is a risk that cheques will be withdrawn without suitable alternatives being in place. The government has told the PC that any alternative will need to be as flexible and easy to use as cheques, but quicker to process and more cost effective. It has also said that a credible and coherent case for abolishing cheques will not be made out until an alternative is found that is widely available, widely accepted and widely adopted by those who do not currently have a suitable alternative to cheques.
In more detail
Payments Council
The PC was set up by the payments industry in 2007 to ensure that the UK payment systems and services meet the needs of payment service providers, users and the wider economy. It sets the strategy for UK payments.
The PC is a membership organisation. Organisations that are payment service providers with qualifying payment volumes are eligible for membership.
The PC has a board of 16 directors. Four of the directors and its chairman (Richard North) are independent. The Bank of England attends the board of the PC as an observer.
The initial decision
In 2009, the PC made a decision to set 31 October 2018 as a target date for closing the central system for processing cheques in the UK, on the basis that the use of cheques has been in decline since 1990 and continues year-on-year. However this decision was subject to various commitments, including acceptable alternatives to cheques being developed and in use, see Payments Council, Cheque Replacement Commitments for Consumers, Small Businesses and the Charity and Voluntary Sector (December 2010).
Cheque guarantee cards
The PC also took the decision (in September 2009) that the Cheque Guarantee Card Scheme would close on 30 June 2011. It will therefore no longer be possible to guarantee a cheque under the Scheme after this date.
Consultation with charity sector
The PC commissioned an independent market research consultation into the current use of cheques and the requirements for alternatives by charities, clubs and societies. A report on the findings was published in December 2010, see Optimisa research: Charities, clubs and societies use of cheques and requirements for alternatives, Executive Summary (December 2010) and Full report (December 2010).
Parliamentary scrutiny
In March 2010, the Treasury Select Committee held an inquiry on the PC's work on the future of cheques. It took evidence from a range of organisations, including the PC itself. At that time the Select Committee was unconvinced by the PC's argument that cheques were in 'terminal decline' and expressed concern about the rigour of the cost-benefit analysis undertaken by the PC.
In April 2011, the House of Commons Treasury Select Committee reopened its inquiry, see Private Client news round-up to 21 April 2011, Treasury Select Committee reopens inquiry into abolition of cheques.
A number of charities and charity sector bodies have given written evidence to the Select Committee, see Parliament: House of Commons Treasury Select Committee, The future of cheques, Written Evidence, 17 May 2011. The Institute of Fundraising, in particular, considers that abolishing cheques will have serious implications for charities, see Private Client news round-up to 12 May 2011: Abolition of cheques disastrous for many charities. Research carried out by Age UK shows that 73% of the older population are still using cheques, see Age UK: 73% of older people still using cheques, research shows (23 June 2011).
Current position
In response to written questions asked in the House of Lords on 21 June 2011, the Commercial Secretary to the Treasury (Lord Sassoon), set out the current position and gave the following reassurances to the House:
- The PC will make a decision on the future of cheques in 2016, when a full cost-benefit analysis has been completed.
- The PC will reach a decision at the end of 2011 on what additional new alternatives to cheques need to be developed. No decision to phase out cheques will be made until alternatives are in place and are being used by consumers and businesses.
- The PC has given assurances that a viable paper alternative to cheques will be put in place to satisfy the requirements of the most vulnerable members of society and that the cheque-clearing system will not be closed until these alternatives are in place.
- The government has made it clear to the PC that any alternative will need to be as flexible and easy to use as cheques, but quicker to process and more cost effective. A credible and coherent case for abolishing cheques will not be made out until an alternative is found that is widely available, widely accepted and widely adopted by those who do not currently have a suitable alternative to cheques.
- The government is closely monitoring the cheque replacement programme and is considering whether it will need to intervene to protect vulnerable individuals and businesses if there is a risk that cheques will be withdrawn without suitable alternatives being in place.
Source
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