OFT to trouble-shoot delays in cheque clearance

OFT to trouble-shoot delays in cheque clearance

	Published : Wed, 09 Nov 2005 07:05 By : Andrew Stead Print this Story

LONDON: At long last, somebody is doing something about the delays in cheque processing - a system which has failed to keep pace with technological advancements. The competition watchdog Office of Fair Trading yesterday announced an investigation into the system.

A task force will now look into why cheques that are debited from one bank’s account are not credited into the recipient’s account at the same time; why banks are reluctant to improve the system; and other related issues.

Most people have experienced the frustration of being charged a penalty of about £25, when a cheque bounces or when they become overdrawn despite expecting money to be credited to their account. Banks are unable to explain the length of time between writing a cheque being and having the money credited into the customer’s account. The normal time it takes for a cheque to be cleared is 4 days, considered ‘too long’ by most people. In some cases, it can even take as long as a week.

The Payment Systems Task Force’s study will cover every aspect of the system, such as when customers can withdraw money against a cheque, when does a received cheque’s amount start to attract interest, etc. It will determine whether it is possible to shorten the three-day time lag between an amount leaving one person’s account and being credited into the recipient’s account.

The task force said it will have to scrutinize the process very objectively because when one writes a cheque the amount stays in the account longer and earns interest compared to direct debit where the money has already left the account the same day.

Whether the process can be speeded up, what would be the benefits of a faster system, who would benefit, how much it would cost and more importantly, who will bear the cost, are some of the questions, the task force seeks answers for.

The rapid growth in online banking seems to suggest that people are fast losing patience with the process and are opting for the convenience, security and speed of direct debit/credit and credit cards. Yet, a survey has shown that about 6.5 million cheques are issued every working day. According to Halifax’s figures for 2004, about 2.1 billion cheques were issued, down 7 percent from previous year.

The task force comprises members of the Treasury, representatives from banks, private companies, the Bank of England, credit card firms, Which? and building societies.

Its findings and proposals for improvement will be presented next summer.