Dormant Bank and Building Society Accounts Bill [Lords]

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Ian Pearson: I shall speak to Government amendment No. 16 to clause 11, which refers to the definition of dormancy. It allows us to have a number of debates about that definition and to make some important points about the priority that we all attach to reuniting customers with their savings.
The Government have made it clear—this is a widely shared view in the House— that reuniting customers with their money should be a priority for the scheme and that, whenever possible, efforts should be made to ensure that customers are reunited with money that is rightly theirs. That is one reason why we welcomed the launch of by the BBA, the BSA and NS&I early this year, and the industry’s commitment to reach out to hard-to-reach and disadvantaged customers. The website has the potential to provide an efficient and effective means for customers to trace their lost accounts and for concerns about personal data to be respected.
As we have heard, since its launch on 30 January, the site has had nearly 190,000 search forms submitted for money left unclaimed in a dormant bank, building society or NS&I account. The Government are always interested in ideas for improving such arrangements, but it is obviously a matter for banks, building societies and NS&I to ensure that they have effective arrangements in place.
To reinforce a point that I made on Second Reading, searches are possible through multiple institutions. Website guidance suggests that, if someone is searching just one institution, it might be best to approach it direct, but multiple searches are allowed. As the hon. Member for Fareham said, there has been an increase in the number of people who have been reunited with their money.
Mr. Field: Given what the Minister says, is he comfortable with the explosion in numbers since the website was set up at the beginning of the year? Does he believe that it is adequate and open enough or that it is simply a playing of the numbers game? Does he understand some of the concerns mentioned by Opposition Members about the fact that there seems to be a lack of incentive on the part of too many of those who will benefit from the system to put in place an entirely open one? At what point will he be satisfied—perhaps it has been reached—in his own mind that enough is being done to ensure that dormant accounts are being reunited with their owners?
Ian Pearson: As I said, I am always interested in ideas for improving the arrangements for reuniting, but I acknowledge the step change in activity this year. We want that progress to continue, and I shall certainly be interested in talking to banks and building societies about their reuniting activities. It should be a priority for them to ensure that they reunite customers with their money, and we all share an interest in ensuring that they are doing all that they reasonably can.
The hon. Member for Cities of London and Westminster raised a specific constituency issue, and I shall trace the correspondence to ensure that the Government are taking any action that we should be taking. To reinforce the point, banks and building societies are committed to reuniting and have made significant efforts to do so.
On the point made by the hon. Member for Fareham, transferring accounts that are not truly dormant is not in the interests of banks and building societies, because they would have to bear the up-front costs of any subsequent reuniting.
The hon. Member for Cities of London and Westminster made a point about insurance companies paying for tracing services. As he knows, the Bill is about the dormant accounts of banks and building societies only—other assets and institutions pose questions for another day.
Mr. Hoban: The Minister said that it would not be in a bank’s interest to transfer accounts that are not dormant because they will bear the up-front cost of the transfer. However, when an account is transferred to the reclaim fund, the cash and liability are in effect transferred as well, so there is no cost to the bank.
Ian Pearson: Certainly administrative and time costs are associated with transferring funds to a reclaim fund and then back again. The hon. Gentleman is right that the assets and liability are transferred, which is one of the purposes of the Bill. I wish that I could reassure him on Government amendment No. 16 and why we want to delete subsection (3). I emphasise that we intend genuinely dormant bank and building society accounts lost by the account holder to be transferred into the scheme, but not accounts that are simply rarely used or where the account holder is still aware of their account. That will minimise the unnecessary costs associated with returning accounts to customers after a transfer.
We believe that our definition of dormancy is simple, clear and straightforward: an account open throughout a period of 15 years with no customer-initiated transactions. However, the scheme allows banks and building societies the flexibility to refer to customer-initiated activities that might indicate that an account is not dormant even where there have been no transactions on the account. If the institution is aware of activity, such as the requesting of periodic statements, we fully expect institutions not to transfer accounts. Furthermore, those with particularly strong or individualised systems can take that into account in their individual policies. That flexibility is one the scheme’s great strengths. I am happy to confirm that institutions will be expected to use their knowledge of such matters. That was indicated in our consultation and is set out clearly in the explanatory notes. It is unnecessary to require in legislation that institutions use their knowledge; that would add nothing to the scheme and have a detrimental impact on the clarity of the definition. That is why our approach has been supported by industry.
Mr. Hoban: I want to return to the Minister’s point about customer-initiated activity. He used the example of a customer asking for a statement of their account. The point at which the statement was requested might indicate whether the customer still knew of the account. If the statement had been requested at the end of year 1 and we were now in year 16, with no customer activity in that intervening period, one would expect that account to be deemed dormant. However, does that activity have to be related specifically to that account? What if a customer has, say, an insurance policy through a bank that is wholly unrelated to the account? I assume that such activity would not impact on the definition of dormancy made by the bank.
I do not think that there is any difference between our intentions. We are saying clearly that subsection (3) and the amendment tabled by the hon. Member for Taunton would muddy the waters and make the position less clear. Our professional advice from those in the industry states that they would much prefer to have a clear definition and the flexibility to use their own judgments and publish their own policies, rather than having requirements introduced under the Bill.
12.45 pm
Mr. Jones: As my hon. Friend is probably aware, I am concerned about the flexibility for banks and building societies to make their own definitions of dormancy, thereby limiting the amount of money that they may have to give up to the reclaim fund. One of my concerns involves something that he just mentioned. I am interested to hear whether there will be any compulsion on banks and building societies to give their definition of a dormant bank account. If not, there may be a problem of definition.
Ian Pearson: There is a requirement on banks and building societies, as part of the banking code, to publish their dormant accounts policies. That is covered. Again, the key point is that it is emphatically the case that banks will want to use their judgment to make reasonable decisions on whether accounts are dormant. We want to create a clear definition of dormancy and then allow banks and building societies to exercise their judgment. Tests such as those in subsection (3), which was inserted in the other place, are not regarded by the BSA or the BBA as helpful. They would fetter the discretion of the institutions to make reasonable judgments on whether accounts were dormant and get in the way of general practice.
I support amendment No. 16 and oppose amendment No. 3. I emphasise that it is not in anybody’s interest to transfer accounts unless people have lost touch and the accounts are considered dormant. If they are not dormant, there is at least an administrative cost involved. I also emphasise that this is customers’ money. If a customer goes through the door of a bank or building society and says that he or she wants their money, they will be able to get it, subject to the necessary checks. If the money has been transferred as dormant, it will be reclaimed by the bank from the reclaim fund, and as far as the customer is concerned, they will just be withdrawing their money from their bank account, as they have a right to.
Mr. Browne: I am not massively reassured by the Minister’s statement that the associations representing banks and building societies are not keen for more onerous requirements to be put on them; I had expected that. Nevertheless, I take his point, which is that it is difficult specifically to define a more onerous requirement. When I moved the amendment, that point was reasonably put to me in an intervention by the hon. Member for Fareham.
As the Minister said, all parties seem to share the overall objective of trying to make the requirement as strong as possible, but given that it is difficult to frame it legislatively, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Hoban: I beg to move amendment No. 47, in clause 11, page 6, line 38, leave out
‘at any time during that period’.
The Chairman: With this it will be convenient to discuss amendment No. 46, in clause 11, page 7, line 3, at end insert—
‘(2A) Where under the terms of the account withdrawals were prevented or there was a penalty or other disincentive for making withdrawals, the period of dormancy as set out in subsection (1)(a) above will start when withdrawals can be made or when the penalty or other disincentive expires’.
Mr. Hoban: This is a probing amendment on the wording of subsection (2). I understand that if money is sitting in an account from which withdrawals are not allowed, or if there is a penalty or a disincentive to making withdrawals, the account cannot be deemed to be dormant. The money will sit for ever on the bank’s balance sheet as an asset or a liability. Because the money is unlikely ever to be declared, the bank will decide not to try to reunite it with its owner. However, I realise that many accounts, for short periods, involve a penalty for early withdrawal, including loss of interest. Even if those penalties were effective for only a short time, those accounts would never be deemed to be dormant.
I looked on the internet to find some examples. I found the Alliance & Leicester eSaver issue 2 account, in which interest is foregone in any month in which a withdrawal is made. That account would therefore fall foul of subsection (2)(b)(ii), which states that
“there was a penalty or other disincentive for making withdrawals”.
On that basis, such an account could never be said to be dormant.
Another was a fixed-rate bond account—not at Alliance & Leicester—that paid a high interest rate but with no access for at least a year. That would fall foul of subsection (2)(b)(i), which states that “withdrawals are prevented”. I am not sure whether that is the intention of the provision, but it is certainly the impression that it left in my mind. That is why I tabled amendments Nos. 47 and 46, which suggest that the period of dormancy should be calculated from the time when the penalty expires. For the Alliance & Leicester eSaver account, the period of dormancy would start after a year, so rather than it being declared after 15 years, it would be 16 years after the account was opened.
I would be grateful for some clarity on the thought processes behind subsection (2).
Ian Pearson: I shall deal first with amendment No. 47, which I appreciate is probing. The amendment would delete the words
“at any time during that period”
from subsection (2). We understand that the intention is to clarify the fact that if an account holder has requested no contact, or if the account is a of type that prevents or includes a disincentive for making withdrawals, the period for calculating dormancy can begin only once the restrictions are lifted. We believe that the clause already achieves that, and that omitting those words is unnecessary and makes the point less certain. The amendment would remove the emphasis that if at any time an account becomes subject to those restrictions, it cannot be considered dormant.
Amendment No. 46 is designed to clarify the fact that a period of dormancy cannot include any time during which any penalties or disincentives for withdrawals apply. The hon. Member for Fareham gave several examples. Although we agree with the intention, clause 11(2) already achieves that effect. In the case of an account with fixed-term or no-mail restrictions, the clause ensures that the 15-year period of inactivity required to meet the dormancy definition cannot begin until those restrictions have ended. These proposals are not necessary, as they would not achieve anything that the Bill does not already ensure. I therefore invite the hon. Gentleman to withdraw the amendment.
Mr. Hoban: I am grateful to the Minister for that clarification. He has set out why my amendments are unnecessary, and I think that the clause is meant to achieve what my amendments are designed to do. The only thing that slightly sticks in my own mind is the phrase “if at any time”, because there may be a one-year period when withdrawals are prevented, but the fact that there is a one-year period means that the account cannot be declared dormant.
An account may have been open for 15 years, but if at any time there was a period when withdrawals were prevented, that account could not be made dormant. I think that that is how the phrase “if at any time” works in the context of the clause.
I think that the Minister and I are on the same wavelength with what we want to achieve, but I am not sure that the drafting of the clause quite gets there yet. I will be happy to withdraw amendment No. 47 and not press amendment No. 46, but I hope that he will look again at the wording of the clause to ensure that it does not inadvertently rule out a swathe of accounts from being dormant. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
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