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 mechanismseither existing or futurewill
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 incomesthe
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 groupsthe 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 consumersthe 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
|