|Previous Section||Back to Table of Contents||Lords Hansard Home Page|
When a cheque is presented in Scotland to a bank, if there are plenty of funds in the account of its owner there is no problem and it goes through in the normal way. However, as soon as the cheque is presented it operates as an assignment of the sum which is drawn in favour of the holder. That codifies a pre-existing principle of Scots common law.
As noble Lords will understand, that is all very fine when there are sufficient funds to meet the cheque. The problem arises when there are insufficient funds. In that case, the cheque, by its very existence, assigns the funds which are not available to be put aside. The bank is obliged by law to put aside that sum immediately, completely and irrevocably and not to make those funds available to the owner of the cheque in future. Therefore, from that moment the assets of the person writing the cheque are frozen, irrespective of any other circumstances.
The only way in which the position can be corrected at that point is if five conditions are met. The first is if the cheque is re-presented and met, because the drawer has sufficient funds. The second is if the holder returns the cheque to the drawer who can then demonstrate to the bank that the holder has relinquished his claim to the attached funds. The third is if the drawer can produce a written declaration from the holder that the claim has been relinquished. The fourth is that five years have expired and the fifth is that a judicial settlement is reached.
As noble Lords will be able to see, the situation places the provider of the cheque and the bank in an awkward position because the funds concerned are frozen. If, for example, a small company is involved, its business can be absolutely wrecked until all the conditions are met and the matter resolved.
The position in England and Wales is much more simple. If the drawer of a cheque has insufficient funds and the bank is not prepared to allow an overdraft, the cheque is simply returned to the payee. The payee must then deal with the debtor directly without involving the bank. Even if several cheques are presented simultaneously which, in aggregate, exceed the funds available, the bank is free to satisfy those cheques for which there are adequate funds and to return the rest. That situation occurs frequently. In other words, the present law outside Scotland is very flexible. The banker and the customer can arrange matters themselves and, it is hoped, no harm is done to the original writer of the cheque.
I believe that this is a sensible and long overdue "putting right" of something that has caused quite a lot of inconvenience. I am informed that there are as many as 100,000 cases a year in which customers experience some form of inconvenience from the present anomaly. The Committee of Scottish Clearing Bankers estimates that attachment of funds procedures cost their members as much as £225,000 a year. Therefore, if the Bill were passed, it would remove an inconvenience and save a great deal of money, not only for banks but for their customers. I very much hope that your Lordships will feel that it is a worthwhile measure. I beg to move.
Baroness Carnegy of Lour: My Lords, I listened with enormous interest to what my noble friend said. The Bill is obviously an attempt to help all concerned in the circumstances that he described. However, I am concerned about one matter from the point of view of the bank's customer. The excellent Explanatory Notes which the noble Viscount has provided with his Bill explain that, where several cheques are presented simultaneously and there are insufficient funds to satisfy them all, the bank in practice will choose which cheques it satisfies from the funds available. It could not satisfy them all if the customer did not have sufficient funds. Therefore, the bank would choose which cheques to honour.
Lord Mackay of Ardbrecknish: My Lords, this short three-clause Bill must seem a long way from the considerable documentation that must have been necessary when my noble friend's bank took over the Nat West, but I suppose that my noble friend must come down to these lesser but still important matters.
As my noble friend Lord Younger explained, this Bill seems a sensible, small measure which will get away from a very cumbersome procedure which I suspect not only causes problems for the banks but also causes problems for the customer and for the person who thought he was about to receive money by presenting the cheque.
I wish to raise only one issue. I understand the point concerning the case where there is one customer with a limited amount of money and suddenly four or five people turn up with cheques which come to more than the individual has in his bank account. Instead of the whole lot going away empty-handed, decisions are made about who will go away empty-handed and who will go away with the full amount. My noble friend Lady Carnegy asked a rather pertinent question in relation to that.
My question is similar but it is easier to explain by using an example of only one cheque. Let us suppose for a moment that somebody has a cheque for £100 and when he turns up at the bank, he discovers that there is only £90 in the account. I often wonder why we do not pay the £90 and argue about the other £10. It seems rather unfair on the chap who should receive £100 that he goes away empty-handed, when he could perhaps go away with £90 of the £100. Perhaps my noble friend will tell me whether this measure will indirectly affect that particular circumstance.
Having said that, on this side of the House, we are perfectly content with this measure. It seems a perfectly sensible reform and will--on this very unique occasion by bringing the law in Scotland into line with the law in England--improve the position in Scotland.
Lord McIntosh of Haringey: My Lords, perhaps a London born and bred Scot--half Scot at any rate--may be allowed to intervene in this matter. We are extremely grateful to the noble Viscount for introducing this Bill, which will allow banks in Scotland to drop antiquated procedures, make administrative costs savings, and offer a more streamlined service to customers.
As the noble Viscount made clear, it is a technical measure to correct an anomaly whose origins are lost in the mists of time, by which I really mean Scots common law. Of course, that is why it cannot be dealt with under deregulation powers. Deregulation powers
It is 11 years now since the Jack report and the Scottish Office public consultations whose results were announced in 1993. That consultation showed that abolition of the funds-attached rule is the right way forward. Attachment of funds has no friends. This is a good opportunity to demonstrate that Westminster is mindful of Scottish interests. The Government will not resist this measure.
Viscount Younger of Leckie: My Lords, I am very grateful to the noble Lord for his acceptance of the measure in that way. I am also grateful for the general welcome that it has received in your Lordships' House this evening.
I was asked two questions which I shall now try to deal with. First, my noble friend Lady Carnegy raised the question of how the bank would operate where cheques were presented and collectively they were more than the funds available to meet them. What happens is quite straightforward now south of the Border. The cheques in question would all be returned. In doing so, the bank would get in touch with the writer and say, "These cheques have been presented and they cannot be met because there is not enough money in your account". The bank would then ask how it was to be dealt with, whether cheques one and two but not three should be re-presented, or the other way around. In other words, there would be consultation, as my noble friend asked, in the best interests of the customer as to which of the cheques could be met. The remaining cheque or cheques which could not be met because there was still insufficient funds would remain a problem to be dealt with in the normal way by saying to the customer, "You have no funds to meet this cheque or cheques, therefore, you must consider what should be done".
That leads me to the second question which the noble Lord, Lord Mackay, raised. He asked what would happen if a cheque for £100 is presented and it can be met except for £10. The answer is that the cheque would be returned to the bank of the writer of the cheque. It would say to the customer, "Your cheque has been presented but you do not have £100 to meet it, only £90". There would then be the option of discussing with the customer whether he or she wished not to present it at all or whether a new cheque should be presented for £90, which would be met, leaving a debt to the business colleague of £10. That would be a matter for discussion between the customer and his or her bank. That raises the need for the measure. It is that sensible dialogue which is prevented by the strange anomaly in the law which we are trying to remove. With that assurance, I very much hope that your Lordships will agree that this measure is worth taking. I therefore ask noble Lords to give the Bill a Second Reading.
|Next Section||Back to Table of Contents||Lords Hansard Home Page|