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The end of Cheques? - Treasury Contents


Written evidence submitted by Citizens Advice

SUMMARY.

    — Cheques represent an important payment mechanism for many people to either make or receive payments, particularly those who find it difficult to use debit or credit cards or operate bank accounts.

    — However, it is important to note that as a payment method cheques have a number of shortcomings. These include problems associated with security, fraud, time taken and lack of certainty over when funds become available, difficulties cashing cheques for people without bank accounts.

    — Citizens Advice is therefore not opposed to the exploration of possible alternatives to cheques. Indeed, we recognise that there is value in undertaking proactive work to actively manage their decline rather than allowing cheques to "wither on the vine". Already, bureaux report cases where cheques are rejected by some businesses and the difficulties that this lack of predictability and consistency can cause clients.

    — However, it is imperative that the managed decline of cheques takes place only if suitable alternatives, which are appropriate for all sections of society, are not merely identified but are developed and universally available. It should also be a precondition of any forced migration that additional costs are not imposed on either those that move to the alternatives or those that require the continued facility to make payments by a paper based system once the cheque clearing system is declining or has been closed.

INTRODUCTION

  Citizens Advice welcomes the opportunity to submit comments to the Treasury Committee's inquiry into the end of cheques.

  The Citizens Advice Bureaux (CAB) network is the largest independent network of free advice centres in Europe, providing advice from over 3,200 outlets throughout Wales, England and Northern Ireland. We provide advice from a range of outlets, including GPs' surgeries, hospitals, community centres, county courts and magistrates courts, and mobile services both in rural areas and to serve particular dispersed groups.

  The service has two equal aims:

    — to ensure that individuals do not suffer through lack of knowledge of their rights and responsibilities or of the services available to them, or through an inability to express their needs effectively;.

    — and equally, to exercise a responsible influence on the development of social policies and services, both locally and nationally.

  In 2008-09 the CAB service in England and Wales dealt with almost 6 million problems in total. Of these, 1.9 million were about debt, 122,000 about consumer goods and services, 118,000 about financial services and 98,000 enquiries about problems with utilities.

  As well as giving advice, some Citizens Advice Bureaux deliver financial education initiatives to their community. In 2008-09 there were 211 Citizens Advice Bureaux that delivered financial capability services. Collaborating with other agencies through the network of financial capability forums, bureaux and forum members have delivered initiatives that benefit a quarter of a million people a year.[23]

  CAB clients are often disadvantaged and many are on low incomes or benefits, or are disadvantaged in some way. For example, research by MORI for Citizens Advice found that CAB users tend to be in social grades DE and be unemployed, or living in social housing.[24] These could be termed, "vulnerable consumers" and may well be financially excluded. We therefore have a particular interest in how payment systems and methods of payment affect low income groups, though their impact on consumers generally is also of concern to us. As a result, we have previously submitted comments to the Payment Council consultation on the demise of cheques, as well as providing views via the Payments Council's Consumer User Forum.

SPECIFIC COMMENTS

  We agree with the Payments Council's conclusion that the use of cheques as a method of payment is in decline, and that a programme is required in order to manage this process to ensure that suitable alternatives are developed.

  Without a coordinated programme there is a risk that market forces may fail to respond to the needs to small sections of vulnerable consumers who are currently reliant on cheques. In our view, the needs of such people must be central to the development of any alternatives and, if this is not feasible, then (as the Payments Council acknowledge) arrangements must be put in place for them to continue to make payments by a paper based system once the cheque clearing system is declining or has been closed.

  We are pleased to report that the Payments Council responded to request in our response to their National Payments Plan in February 2008 and has commissioned research on the usage of, and need for, cheques by different groups of consumers before making firm plans to phase out cheques. The research undertaken confirms our understanding of those groups who have existing dependencies on cheques which must be addressed in any programme to manage the decline of cheques.[25] Such groups include: people with degenerative illnesses; people who are housebound or who have mobility problems; people who pay for their own care; people, including some elderly people, who may be particularly resistant to change; those with chaotic lives who may not be able to operate a bank account.

  We would expect the Payments Council to continue their engagement with consumer groups in order to ensure that the needs of highly-cheque dependent consumers are addressed. More specifically, we would expect that any alternatives developed should be measured against how well they cater for the needs of these groups of customers.

CHEQUES REPRESENT AN IMPORTANT PAYMENT MECHANISM FOR MANY PEOPLE

  As the research undertaken on behalf of the Payments Council has confirmed, payment by cheque represents an important payment method for certain groups of people, including the housebound, those who lead chaotic lifestyles, people paying for carers. For people who are unable or unwilling to make payment by debit or credit card or who live in a rural or isolated location, payment by cheque can offer a convenient method.

    A CAB in Oxfordshire reported a case in which their client's mother, who is 83, housebound and lives in a village where the local shop has closed and bus services have been greatly reduced, has experienced difficulty in arranging payment of her council tax. Every two months the client had to travel several miles by bus to her mother's house to collect her money for the council tax, then travel back to her village where she paid money to the council via a facility offered at the local shop. When the client was late with the payment in October as she was ill, her mother's council tax payment was delayed and she therefore received a summons for non-payment from the council which demanded payment of the outstanding amount of £167 plus £65 for issuing a summons and £65 for a court hearing. When the CAB adviser contacted the local council they agreed to try to waive the court costs, and also offered to help the client to set up a bank account with a cheque book so that the client's mother can pay her council tax in a more convenient manner by sending a cheque in future.

AS A PAYMENT METHOD, CHEQUES HAVE A NUMBER OF SHORTCOMINGS

  However, we recognise that cheques have a number of shortcomings, which can cause significant inconvenience to vulnerable groups or those on low incomes. Citizens Advice Bureaux report cases which highlight a number of the problems which relate to both the receipt of cheques and their use to make payment. More specifically, these problems can include issues with security, fraud, time taken and lack of certainty over when funds become available, difficulties cashing cheques for people without bank accounts.

  Clients who do not possess a bank account can find it very difficult to cash cheques or they can end up paying large amounts to do so.

    A CAB in Hampshire reported that their client was sent a cheque for disability living allowance (DLA) for £455 which he could not cash as he did not have a bank account and it exceeded the amount which can be cashed at the Post Office. When the client contacted the DLA office they asked the client to return the cheque and said they were aware that the Post Office were unable to cash cheques over £450. As a result, this vulnerable client was left without benefit for a short time, causing real financial hardship.

    A CAB in Staffordshire reported a case in which their client, an ex-offender, had been refused basic banking facilities at every bank or building society he had approached. The client is in receipt of benefits but since the local authority pay housing benefit cheques directly to the client and not the landlord, the client has to pay a £30 charge each time he cashes a cheque in loan shops. The client is falling short on his rent payments because of this and has to make up the difference out of his benefit, which leaves him very little to live on.

    A CAB in Hampshire reported that their client had difficulties opening a bank account on his release from prison due to difficulties providing ID documentation that was acceptable to banks. As result, the client has had to resort to using a cheque cashing service in order to cash his wage cheques. The client is paying approximately £50-£60 to cash each wage cheque.

  CAB clients can also be greatly inconvenienced by problems associated with the security of cheques or the uncertainty which can surround when they have cleared (notwithstanding recent changes in this area).

    A CAB in North London reported that their client was employed for four months by a hairdressers but was only ever paid one sum of money that successfully cleared into her bank account. This was for £584 which was equivalent to less than one month's pay. The company failed to issue any further payment but eventually provided a cheque for £981.57. The client paid the cheque into her bank but the bank subsequently returned the cheque as unpaid. The client has tried ever since to get the wages she is owed but has been unsuccessful. In total, the client is owed £2,616.

    Another CAB in North London reported a case in which their client, a single parent, made a claim for the Health in Pregnancy Grant (HIPG) in May 2009. The HIPG had recently been introduced and when the client had contacted the call centre following non-receipt of the benefit, she was told that there was a delay in processing claims. In late June the client was told there had been problems paying the grant into her bank account, and therefore a cheque for the sum of £190 would be sent to her home. After a few weeks, the client contacted HIPG to advise them that she had not yet received the cheque. Shortly after this, the client received a letter stating that the cheque had been cashed at a Post Office in Middlesex by a third party. A photocopy of the cashed cheque was enclosed. The client had not received the cheque and had not given authority anyone to cash a cheque.

    A CAB in Buckinghamshire reported that their client, a 60 year old Asian British man, had been in hospital for six weeks and so had claimed income support instead of jobseekers allowance. The client was awarded a cheque payment of £542.58 to cover income support and incapacity benefit for this period but never received the cheque. With the help of the CAB, the client has been trying to get the Department of Work and Pensions to investigate the missing cheque and re-issue it.

  These difficulties serve to demonstrate that the current usage of cheques can, on occasion, have a number of shortcomings. They also demonstrate the opportunity presented by the development of an alternative to cheques to improve on the current situation and help to make such problems a thing of the past.

THE CURRENT SITUATION

  Given the difficulties highlighted above, Citizens Advice is not opposed to the exploration of possible alternatives to cheques. Indeed, we recognise that there is value in undertaking proactive work to actively manage their decline rather than allowing cheques to "wither on the vine". We are fearful that if the decline of cheques is merely left to market forces then it is likely that those who are least able to make changes to alternative payment mechanisms—either existing or future—will end up being excluded or incurring fees or will face additional difficulties in making payments.

  Already, bureaux report cases where cheques are rejected by businesses and the difficulties that this can cause clients:

    A CAB in Essex reported that their elderly female client came to the bureau because her NHS dentist had refused to accept a cheque for payment for dental work. Since the client does not have, nor want, either a debit or credit card, she has a very limited range of alternatives open to her..

    A CAB in Greater Manchester's client was given a cheque for £345 by the British Legion Trust Fund to pay for him to go bankrupt. The client went to the County Court to present the cheque but was told that they could not accept a cheque as payment, advising the client that they can only accept solicitors' cheques or cash.

    A CAB in Oxfordshire reported a case in which their client, a 91 year old disabled woman who lives alone, came to the bureau for assistance because her insurance company no longer accept payment by cheque for renewal of an insurance policy. The client is almost blind but can see sufficiently with the help of magnifying glass to write out a cheque, but cannot read numbers on her debit or credit card. As a result of the insurance company's refusal to accept cheques the client had been forced to come to the bureau for assistance in renewing her insurance by debit card.

  And some cases appear to suggest that businesses can use the end of the facility to accept or issue cheques as an opportunity to sign customers up for more expensive or inappropriate alternatives:

    A CAB in Essex reported that their client bought a television from a high street electrical retailer in March 2009, and felt obliged to enter into a finance agreement with the company due to their policy of no longer accepting cheques. The client was assured by the shop's employee that he would be able to repay the credit amount straightaway, but he was subsequently advised by the bank that paperwork was required before he could do this. The television had been delivered, but the paperwork had not been received, so it had not been possible for the client to make the necessary payment and the client was concerned about the outstanding credit agreement.

    A CAB in Surrey reported that their client, who does not have a cheque book, credit card and does not have confidence in Direct Debits, paid for her utility bills by requesting a counter cheque from her bank. The client's bank have withdrawn this facility and the client has been advised that her only alternative is to open an account which provides her with a cheque book but which will cost her £10 per month.

  While the need to develop a managed programme of migration away from cheques could help to ensure that the needs of vulnerable consumers are not ignored, there is clearly a need to consider carefully what this programme should consist of. In our opinion, valuable lessons can be learned from other examples of widespread migration that have occurred, for example we consider that there is a need to:

    ensure that any new product is suitable for all and that its features do not end up disproportionately penalizing vulnerable groups or those on low incomes—the move to direct payment of government benefits enabled Government to make huge savings but pushed many low income people into opening bank accounts. This was, in many ways, a positive move which helped to tackle financial exclusion. However, the migration also exposed many people with low levels of financial understanding or confidence to the possibility of incurring large charges for unpaid direct debits or unauthorized overdraft charges, causing major affordability problems and potentially worsening the financial predicament of people on low incomes or in debt.

    publicise exceptions which are developed to help specific vulnerable groups—the option of chip and signature was developed for people who felt that they could not cope when chip & pin was introduced. This was a welcome development but we do not think that sufficient attention was given to, or activity targeted at, publicizing this alternative.

    publicise change, offer assistance to those most in need and engage with stakeholders who deal directly with consumers—the Digital Switchover programme offers useful learning points in a number of areas, including building consumer awareness of change, involving a range of consumer organisations at both a policy and practical level.

  The managed decline of cheques should takes place only if suitable alternatives, which are appropriate for all sections of society, are not merely identified but are developed and universally available

  Although we recognise that there is value in undertaking proactive work to actively manage the decline of cheques rather than permitting a haphazard and erratic withdrawal, we consider that this programme can take place only if suitable alternatives, which are appropriate for all sections of society, are not merely identified but are developed and universally available.

  In respect of this, we are pleased to note that the Payments Council has built safeguards into their plans so that "the final decision to close the cheque clearings is only taken on the basis of firm evidence that there are acceptable alternatives to cheques in all of the significant areas where cheques are currently used".[26]

  We also welcome the acknowledgement by the Payments Council that "there will be some users who will require the continued facility to make payments by a paper based system once the cheque clearings have been closed".[27] We think that this is a sensible approach and note that despite efforts to migrate benefits recipients away from payment by cheque, the DWP continues to pay more than 340,000 accounts in this way.[28]

  It should also be a precondition of any forced migration that additional costs are not imposed on either those that move to the alternatives or those that require the continued facility to make payments by a paper based system once the cheque clearing system is declining or has been closed.

March 2010












23   Financial Skills for Life-building financially capable communities, Citizens Advice, December 2009. Back

24   Financial Overcommitment, research study conducted for Citizens Advice, MORI, July 2003. Back

25   The Future of Cheques in the UK, Payments Council, December 2009, Annex B. Back

26   The Future of Cheques in the UK, Payments Council, December 2009. Back

27   Ibid, p 21. Back

28   Hansard HC Column 697W, 8 February 2010. Back


 
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