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10 Jan 2008 : Column GC329

Grand Committee

Thursday, 10 January 2008.

The Committee met at two o'clock.

[The Deputy Chairman of Committees (BARONESS TURNER OF CAMDEN) in the Chair.]

Dormant Bank and Building Society Accounts Bill [HL]

(Third Day)

Clause 9 [“Account”]:

Lord Shutt of Greetland moved Amendment No. 34:

The noble Lord said: We return to this Bill and all its works, having had the chance to reflect during Christmas and new year. It was helpful that last evening I went, unusually for me, to a reception that the mutuals put on with the Building Societies Association in Portcullis House and then to a reception held by the British Bankers’ Association. It was useful to meet one or two people who had an interest in this Bill.

Amendment No. 34 brings us back to the crunch of what an account is. The amendment states that an account is,

so there is no doubt—

What we do not know is what has happened over the years. If we take a view that the banks and building societies were inaugurated some 150 or 200 years ago, the idea of dormancy and what might happen to dormant accounts has been interesting people for perhaps only 10, 15 or 20 years, but did not exercise minds in earlier times. Therefore it would not surprise me if a bank or building society in earlier times had said, “Well, it looks as if these people are not going to turn up. We have had a bit of a bad year. We will write this money off to profit”. Indeed, in terms of a bank, it could have been subsumed in what was ultimately paid as a dividend. We do not know that and I do not know whether anyone does.

However, it is important to make it clear that we are not talking about something that has happened only in the past year or two. If these sums have been built up over many years, they are still in play as far as this Bill is concerned in terms of dormancy and being available for distribution in the way that is intended.

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Since we last met, it is interesting that Amendment No. 42, in the Minister’s name, states that,

He is getting somewhere near to me, except that I think that my amendment is more clear and straightforward. Speaking is sometimes effective by putting these matters on record. The British Bankers’ Association put out a few sheets the other day which state that the banks have said all along that they will participate voluntarily, provided that,

I think that my amendment is helpful by talking about definition; but, even more helpfully, the BBA states:

That is fine and okay as far as authors are concerned, but let us be clear and let us have it in the legislation. I beg to move.

Lord Davies of Oldham: I am glad that the noble Lord, Lord Shutt, has been profitably engaged over the recess, or just after it, in discussions with various people with a keen interest in the Bill. I hope he recognised that he was getting a favourable response from all sides. He is right that the government amendment helps matters, as he would see it, to move a little closer to his position and, as we would see it, to make clear the provisions in the Bill.

The noble Lord’s amendment is not necessary. I hear what he says about historical accounts. However, Clause 1 applies to historical accounts where a bank or building society transfers to an authorised reclaim fund the balance of a customer’s dormant account, and it is clear that, provided the customer is able to show that he has entitlement over the account as the proper claimant, the money will be paid to him regardless of the fact that so far as concerns the institution there may have been historical issues or changes relating to the account.

The account may not be in the original account holder’s name because of the factors identified by the noble Lord, but he is right—he read out the relevant passage—that the banks and building societies are participating in a voluntary scheme, and they are participating on very clear principles. The objective is to ensure that account holders are reunited as far as possible with money that is properly theirs. An account will become dormant only after the 15-year period, subject to the safeguards in the Bill.

I recognise the noble Lord’s anxieties but I do not think that his amendment advances the cause significantly. If a financial institution has a combined historical dormant account for its own operational reasons, that does not prevent a balance owing to a customer either being reclaimed by that customer if he is able to establish entitlement or going into the scheme.

I assure the noble Lord that we have considered these points carefully. He made his position clear on some of them at Second Reading. If I thought that

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there was a smidgen of doubt regarding these accounts, I should respond to him differently. He kindly referred to Amendment No. 42, so he recognises that we are making our position clearer, but I assure him that his amendment is not necessary and would not add to the security that he seeks regarding the accuracy of the definition of dormant accounts.

Lord Shutt of Greetland: I am far from clear that the Minister understands where I am coming from on this matter. We have received a lot of paperwork recently, and are still receiving it, on the subject of “reuniting”, and it is right and proper that that reuniting endeavour takes place, but three things can happen. First, money can be reunited. Secondly, money that goes to the reclaim fund can ultimately go to a good cause. However, I am concerned with the third area, whereby money does not go to the reclaim fund because it was written off to a suspense account by the bank in 1950 or was written off to profit in 1935 or whatever. If we are talking about a level playing field, we have to be absolutely clear about what is in the Bill.

I could understand if the Minister said that anything before 1918 or 1945 or whatever date was being written off. That is why I said in the first place that every account that has ever existed should be included. If it is really dormant and cannot be reunited, it should get through to the reclaim fund. I am concerned that there should not be a situation where a bank or building society says, “We wrote it all off in the old days. We have had some since about 1970, but anything before that has been forgotten and we are not bothering about it”. That is the problem. If there is a level playing field, there must be that clarity. That is why we need an amendment of this nature.

We will have to look at this matter another day. This is an issue, but for the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 35 not moved.]

On Question, Whether Clause 9 shall stand part of the Bill?

Baroness Noakes: I gave notice that I intended to oppose the Question that Clause 9 shall stand part. At our last sitting, I tabled Amendments Nos. 33 and 35 to Clause 9, which were intended to tease out the meaning of the drafting. In the event, the 7.30 pm Grand Committee curtain came down before we were able to complete our discussions and I promised the Minister that I would try to find a way of bringing back the points to continue them. Since we were in the middle of our discussions of Clause 9, I was able to continue our debate under the simple device of clause stand part.

I will remind the Minister what I asked on our last Committee day because that was some time ago. I first probed what was meant in subsection (1) of Clause 9 about an account which “consisted only of money”. I pointed out that accounts always consisted of money because that is how accounts are expressed.

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I asked the Minister to explain what subsection (1) was intended to include or exclude and I hope that he can give some examples so that the Committee can be clear about what is intended.

Secondly, I probed why subsection (2) restricted accounts to those which are part of a bank's “activity of accepting deposits”. I asked how that applied to accounts that arrived in the bank through other financial services. I cited the specific example of a self-invested pension plan, which includes a bank account. How is a customer to know whether his account falls within subsection (2)? Again, I asked the Minister to give some examples of what is intended to be included or excluded by virtue of subsection (2) to bring the policy intent behind Clause 9 to life.

In Committee, the Minister replied that the Government wanted to restrict this Bill to ordinary current and deposit accounts. He said a lot of other things as well but they were not relevant to the issues that I raised. In particular, he did not respond to the questions that I raised in respect of subsections (1) and (2) and did not give any examples to clarify why, if the Government intended to restrict this Bill to current and deposit accounts, the Bill does not simply say that it should be so restricted, with appropriate definitions. I tabled the clause-stand-part objection to enable the Minister to reply to the points that we did not fully get a chance to explore in December and to gain greater enlightenment of the Government's intention behind Clause 9.

Lord Davies of Oldham: As the noble Baroness said, she promised to return to this and I knew that she would fulfil her promise. I hope that I am better equipped today to respond to the points that she made. Perhaps a little refreshment on the issues after the new year is appropriate. This is a voluntary scheme— the product of the Government working with the bank and building society sector to produce a scheme based on dormant bank and building society accounts.

2.15 pm

The noble Baroness asked on a previous occasion in Committee, and has done so again today, why the Bill defines “account” as it does. There is no formal definition of “account” in common use. The Bill is therefore obliged to define eligible accounts and does so by insisting that they must consist of cash and must relate to the bank or building society’s activity of accepting deposits. The noble Baroness asked why the “accounts” must consist only of cash. She is well qualified to recognise that a whole range of assets and financial products is held in accounts with banks and building societies. ISAs, for example, consist of stocks and shares, as well as cash. The Government’s intention is for the dormant accounts scheme to be based only on accounts containing cash, because it is a voluntary scheme and we want to make the demands on banks and building societies as simple as possible so that we can achieve the goal that they share with us. The Bill facilitates a scheme which addresses the relevant legal and accounting issues for cash deposits. We would be obliged to make different provisions if other types of investment, such as shares, were to be transferred into the proposed reclaim fund.

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Subsection (2) restricts the scheme to accounts relating to an institution’s activity of accepting deposits. This focuses the proposed scheme on ordinary current or savings accounts and excludes those from which payments are made in relation, for example, to insurance policies or mortgages obtained through the bank or the building society. The provision would include any current account opened by a bank or building society as part of its deposit-taking activities where those accounts facilitate another financial approach; for example, a self-invested personal pension scheme.

If we were to open more widely the definition of “account”, we might need to take account of a whole range of fresh definitions. The Bill must define the assets caught by the scheme, because the scheme will not function unless people are clear about it. Simply removing the provisions from the Bill would not protect consumers—very far from it. A definition of “dormant” based on customer-initiated transactions makes sense for current or savings accounts, but may not make sense for accounts opened in relation to the provision of other products such as insurance policies. We would therefore be obliged to address that problem.

Similarly, the definition of “balance” would scarcely be appropriate for describing the customer’s entitlement in relation to other financial products involving investments. I recognise that the noble Baroness has a point: the Bill looks narrowly defined and with a certain degree of crudity. We are all aware of the much more sophisticated financial transactions in which ordinary members of the public are so frequently involved in these changing times. However, the scheme has to be clear. The banks and building societies must know what their operations involve. That is why we talk in terms of cash and money, and do not seek to open up the wider assets which customers might deposit with banks and which raise challenging issues. The essence of the Bill is to launch a scheme with a maximum amount of clarity and simplicity.

Baroness Noakes: I thank the Minister for that reply, which was a much better reply than he gave me during our previous day in Committee. He underlined that the Government have not chosen a direct form of drafting—which is to define current and deposit accounts—but an indirect form designed to ensure that the Bill does not catch anything other than bank and building society accounts. We debated that during our first day in Committee, as the Minister is aware, and most of us are dissatisfied with the scope of the Bill, but if the Minister is insistent that it should be narrowly defined, Clause 9 achieves that effect. That does not mean that we are happy with the outcome, but he has better explained the intent behind Clause 9.

Clause 9 agreed to.

Clause 10 [“Dormant”]:

Baroness Noakes moved Amendment No. 36:

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The noble Baroness said: We now come to a small series of amendments designed to probe the robustness of the definition of “dormant” in Clause 10. I have not grouped these amendments because each addresses a slightly different point and I believe it is more efficient in getting a specific answer from the Minister if the points are addressed by individual amendments.

Amendment No. 36 adds a new subsection after Clause 10(1) which states:

As I understand it, the British Bankers’ Association and the Building Societies Association have agreed that the Banking Code will in future agree text that incorporates a requirement for banks and building societies to write to account holders when they subscribe to the dormant accounts scheme and to remind account holders every three years. The code will also state that the unclaimed assets scheme will apply after 15 years. We support that, but the Banking Code is a voluntary code, and not all banks and building societies subscribe to it—we covered that during the first two days in Committee. While the code is extremely helpful, it has no direct bearing on the definition of a dormant account for the purposes of the Bill. My amendment simply makes it clear that communication is a legal prerequisite before an account can be declared dormant and transferred to the reclaim fund.

My amendment thus works with the grain of the agreement of the BBA and the BSA, but makes clear in the legislation what we understand to be the intent behind their approach to the dormant accounts scheme. It would apply to all banks and building societies, whether or not they subscribe to the code or operate it properly having subscribed to it. I hope that the Minister will welcome the amendment, which is aimed at consumer protection. I beg to move.

Lord Newby: As the noble Baroness said, the substance of this amendment appears to have been accepted by the BBA. Given that we have a voluntary scheme in prospect—until we can change it on Report—if the BBA supports the substance of the amendment, it is difficult to see why it should not be put in the Bill to reassure everybody. There is no issue of principle here for any of the actors in this saga so why not put it in the Bill and be done with it?

Lord Davies of Oldham: I am grateful to noble Lords who have spoken on this amendment. As I have emphasised time and again, the important priorities of this scheme are successfully reuniting customers with their proper resources and increasing consumer awareness about such resources and what is proposed in the Bill.

We consulted on these issues when preparing the Bill. The scheme’s publicity should leave account holders clear on how they can trace dormant accounts and claim their money. The noble Baroness was generous enough to refer to the announcement by

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the British Bankers’ Association that it is in the process of amending the Banking Code to reflect this. She is right that the code is voluntary but it covers a wide range of banks. The banks have, I think, also written to noble Lords about this matter; if not, I am sure that the letter is on its way. They understand the anxieties of the House that maximum steps should be taken to make customers aware of their assets and the implications of the scheme.

In real terms, account holders will not feel any difference from this legislation with regard to their accounts. They are active in pursuing their interests with regard to their accounts; the only time when they are affected is if an account is defined as dormant. We hope that the cases when reclaim occurs will be few and far between; that is the purpose of the publicity that the banks are undertaking.

The parts of the scheme dealing with reunification and customer notification are not a matter for the Government or for legislation, but I assure the Committee that the Government were at pains to emphasise to the interests concerned that such a scheme would not work to public satisfaction unless significant efforts were made on the process of reunion between the customer and their account, when the account had fallen into abeyance. We have had proof over the past two months of the work that has been done in this area, including later this month the launch of the one-stop shop for the customers searching for their lost accounts, which will enable them to initiate a free search covering banks, building societies and national savings via a single application.

We are satisfied that significant efforts are being made with regard to this aspect of the scheme. In keeping with the voluntary concept of the scheme, we do not propose to put in legislation demands on the institutions about how they should increase awareness. They have agreed to notify account holders generally of the scheme’s introduction—that is, all customers—and its implications for them. When account holders are in active contact with their bank, notification will go through the existing channels, with the existing literature. If an account has been inactive for 15 years and the institution is not confident that it has the account holder’s current address, it is not likely to be very productive for the bank or building society to write to an address that has produced no response for that length of time.

It is already usual practice for banks and building societies to write to customers whose accounts have been inactive over a much shorter period than the 15 years envisaged in the legislation. That is set out in the 10-pledges leaflets issued by the British Bankers’ Association and the Building Societies Association. If the institution receives no response, the account is treated differently from other live accounts. For example, the banks and building societies no longer send statements to an address when it is clearly proving to be unproductive.

Therefore, a further requirement for a written notification after 15 years is likely to prove of benefit only to fraudsters engaged in identity theft. It would be burdensome on the institution, likely to produce

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little return, and the return that it could achieve could be quite deleterious. For that reason, the banks and building societies will instead continue their current practice of attempting to contact lost customers at a much earlier stage than 15 years and publish their policies on how they will determine their accounts eligible for the scheme at that 15-year stage.

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