Cheques to decline further as guarantee system ends

Banks will no longer underwrite cheques from 30 June, making it easier to lose money on bounced cheques. Julian Knight investigates

Consumers and businesses accepting cheques are being warned that, in just a few weeks, the bank guarantee which underwrites the whole system will be abolished, potentially putting millions of Britons at greater risk of losing out.

From 30 June, the UK cheque guarantee card system will be brought to an end, seven years before cheques themselves are phased out. This means that individuals and businesses accepting a cheque will no longer be able to rely on the issuing bank honouring it as a matter of course.

"Many Britons will not be aware of this fundamental change which means that they – and small business in particular – will have to be more careful under which circumstances they accept a cheque because the bank guarantee that backs it is no more," said Prue Watson, spokeswoman for the Federation of Small Business. Currently the cheque system means that up to £250 is guaranteed to be paid by the bank.

Without this guarantee in place, people and businesses that receive cheques will have to take up the cudgels should a cheque bounce. "In instances where the amount is small, the receiver of the bounced cheque will have to decide whether or not they can afford to pursue a bad debt privately through the courts. I imagine there will be scenarios where this is just too expensive. This action by the banks could seriously damage the cash flow of businesses at a time when money is extremely tight," said Ms Watson.

The UK Payments Council, which represents the banking industry, said that the move to scrap the guarantee will affect only a small percentage of cheques. "Last year, just 7 per cent of cheques were backed by a cheque guarantee card," said Sandra Quinn, communications director of the Payments Council. However, as consumer group Which? points out,this still equates to 95 million cheques. "This is not a small number. The banks justify the end of cheques on the grounds that they are in terminal decline. But by ending the cheque guarantee system so early the banks are accelerating the process of decline. This is another nail in the coffin of cheques," James Daley, editor of Which? Money, said.

Groups representing older people have also railed against the decision to end cheque guarantees so soon. "This is simply about the banks not wanting to underwrite the cheque system any more, because it costs them to administer and also when a cheque bounces they may lose out. But what they have got to understand is that cheques are an essential consumer and business service. Older people and small businesses are not geared up for online banking and Bacs transfers as the banks would like us to be," said Dr Ros Altmann, director general of Saga.

The part-nationalised banks RBS and Lloyds should set an example and continue to guarantee all customer cheques Dr Altmann added. "It would be good if these institutions were to keep this useful service going, at least until cheques themselves are abolished." This is echoed by Ms Watson. "We don't accept that there is a need to abolish cheques full stop. But if it does come to pass in 2018 it would be much better for consumers and business and for the sake of clarity that the cheque guarantee system stayed in place until then," she said.

However, in response, Ms Quinn said that the onus was on customers to ensure that the system worked without banks offering a guarantee. "Ultimately it's up to people to ensure that they don't write cheques that bounce. As for those receiving cheques dated after 30 June, the message is that they will not be guaranteed by the bank and it will be up to individuals and business to pursue non-payment," she said.

Nevertheless, last Friday was the deadline for submissions to the Treasury Select Committee relating to its reopened enquiry into the abolition of cheques. In particular, the committee, inundated by public concerns, had seemed unconvinced by the Payments Council's argument that the cheque system was fast becoming an expensive anachronism.

When the reopening of the enquiry was announced, committee chairman Andrew Tyrie said that the banks had failed to consider the millions of people who are not comfortable with using more modern payment methods. In addition, Mr Tyrie had said he was "shocked" at the statistical evidence put forward by the Payments Council at the previous enquiry in favour of cheque abolition.

One key submission to the reopened enquiry has come from the Institute of Fundraising stating that there should be no abolition of cheques until alternative methods of payments have been introduced. The charity sector is calling for a delay to abolition of at least 10 years.

But opponents of the switch-over will be aware that time is running out. "I hope that the Treasury Select Committee tells the banking industry that it needs to keep the cheque guarantee system up and running rather than abolishing it on 30 June, at least until they have reported on the matter. The banks are behaving in a draconian way and we are in danger of cheques being got rid of by the back door on 30 June," Dr Altmann said. Mr Daley added: "Once this useful system of cheques and guarantees is gone, it's gone."

Q&A

Will I still be able to write cheques after 30 June?

Yes, but you may find the numbers of people and businesses willing to accept a cheque declines.

What happens if I accept a cheque and it bounces?

The banks say it is up to you to pursue the debt.

My local supermarket doesn't accept cheques so what's the problem with phasing out?

Many large retailers have already stopped accepting cheques but many small businesses and private individuals still do. About 1.4 billion cheques are cashed annually.

When will cheques be phased out?

The date set by the bank is 2018 but many groups want a delay.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
News
Rob Lowe
peopleRob Lowe hits out at Obama's snub of Benjamin Netanyahu
Sport
football
News
Davies (let) says: 'Everybody thought we were having an affair. It was never true!'
people'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Arts and Entertainment
Over their 20 years, the band has built a community of dedicated followers the world over
music
News
Staff assemble outside the old City Road offices in London
mediaThe stories, the writers and the changes over the last quarter of a century at Britain's youngest paper
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project
    Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

    Diana Krall interview

    The jazz singer on being friends with Elton John, outer space and skiing in Dubai
    Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

    Pinstriped for action

    A glimpse of what the very rich man will be wearing this winter
    Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

    Russell T Davies & Ben Cook: How we met

    'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
    Bill Granger recipes: Our chef serves up his favourite Japanese dishes

    Bill Granger's Japanese recipes

    Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
    Michael Calvin: How we need more Eric Cantonas to knock some sense into us

    Michael Calvin's Last Word

    How we need more Eric Cantonas to knock some sense into us