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Press releases 2006 -

The Payment Systems Task Force and reforms to the cheque clearing processes

159/06    14 November 2006

Ed Balls, Economic Secretary to the Treasury, announced today that, following a recommendation from the Chairman of the Office of Fair Trading, the Chancellor of the Exchequer has agreed to the establishment of a new governance body for payment systems, the Payments Industry Association. In addition, the Payment Systems Task Force, which is chaired by the OFT, has also announced that agreement has been reached on a number of improvements to the cheque clearing process that will benefit both consumers and businesses.

The Payments Industry Association will be the new strategic governance body for the payments industry in the UK, and will concentrate on access, innovation and governance issues. It will provide a lasting governance solution to the issues raised in the Cruickshank Report. The Payments Industry Association Board will consist of independent directors and directors from the payments industry with an independent Chairman, Brian Pomeroy. The OFT will review the outputs and achievements of the Association against its objectives after two years. The Chancellor has agreed that the majority of the outstanding work of the Payments Systems Task Force can be transferred to the Payments Industry Association. The Task Force will meet for the last time in December.

In the Cheques Working Group report published today, the Task Force concluded a number of significant improvements can be made to current clearing arrangements. All of these reforms will take effect from November 2007 and will improve all users' experience of the cheque clearing system, particularly vulnerable consumers, basic bank account holders and small businesses.

Download the Cheques Working Group Report (pdf 1.4 mb)

For more information visit the Payment Systems Task Force area of this website.
The OFT, as well as the sponsors of the Banking Code and other Task Force members, will recommend to the Independent Reviewer that, where appropriate, these changes should be inserted into the Banking Code in March 2008. The main proposed changes are:

  • money deposited into any account will start to earn interest (in interest-bearing accounts) or will count against overdrafts no later than two working days after the cheque is deposited (for example, Wednesday for a cheque paid in on Monday)
  • all consumers and businesses will be able to withdraw funds deposited by cheque into current and basic bank accounts no later than four working days after the cheque is deposited (for example, Friday for a cheque paid in on Monday). For instant access savings accounts and those savings accounts from which withdrawals are allowed subject to a penalty, withdrawal will be available no later than the sixth working day after the cheque is deposited (for example, Tuesday of the following week for a cheque paid in on Monday), and
  • financial institutions will not be able to take money deposited by cheque back out of an account later than six working days after deposit ('guaranteed fate'), unless the payee is a knowing party to fraud. Currently, there is no maximum time limit for fate in the UK. This agreement puts the UK in a world-leading position.

These limits will provide consistency and clarity for consumers, and will bring basic bank accounts fully into line with other types of current account. All cheques, regardless of where in the UK they are drawn or paid in, will be subject to the agreed limits outlined above. This single UK-wide proposition removes delays on cross-border cheques and provides clarity and consistency for UK consumers, particularly those in Northern Ireland.

The Task Force has concluded that there is no case for a complete rebuild of the cheque clearing system. Research shows that the number of cheques in circulation is falling by around eight per cent per year, and this rate of decline is likely to increase substantially when the new faster payments service becomes available in November 2007. In addition, several major retail groups are either trialling not accepting cheques as a payment mechanism at their tills or have stopped taking cheques altogether.

There is no float in the central cheque clearing system and any float created by the practices of individual banks and building societies will be eliminated by the new agreement on payment of interest. The figure of £30 million referred to in the OFT's 2003 report 'UK Payment Systems' relates to float created in electronic payments (payments initiated by telephone and internet, and standing orders). This will disappear with the introduction of faster payments in November 2007.

Jonathan May, OFT Chairman of the Payment Systems Task Force, said today:

 'The creation of the Payments Industry Association is good news for both consumers and businesses. It will provide strategic direction to the development of payment systems in the UK and its strong governance arrangements will ensure that the needs of users are taken fully into account. The Task Force welcomes the agreed changes to the cheque clearing system, which will lead to much greater transparency, clarity and consistency for customers.'

Jonathan May will address issues relating to the OFT's work in the wider retail banking and financial services market and how this fits into the OFT's overall strategy at the BBA's annual retail banking conference on 15 November 2006 at the Cavendish Conference Centre, London. The full text of the speech is available on the speeches area of this website.


1. The Task Force was established following an announcement by the Chancellor in his pre-Budget Report of November 2003 that the OFT would play an enhanced role in payment systems for a period of four years. The Task Force, which is chaired by the OFT, is made up of representatives of consumer groups, business, the government and the payments industry, has been the driving force behind a number of highly significant improvements to the UK's payment systems since it first met in April 2004.

2. The members of the Payment Systems Task Force are: Office of Fair Trading (Chair), APACS (the UK payments association), BACS Payment Schemes Limited, British Bankers' Association, British Retail Consortium, British Chambers of Commerce, Building Societies Association, CHAPS, Cheque and Credit Clearing Company Limited, LINK, Visa, MasterCard, S2, Federation of Small Businesses, National Consumer Council, Which?, The Bank of England (sitting as observers), and HM Treasury (sitting as observers). Individual banks are members of the Task Force's working groups.

3. The Government's productivity and enterprise agenda is aimed at strengthening competition to encourage firms to innovate, reduce costs and provide better quality goods and services to the consumer. In 1999 Don Cruickshank launched a consultation as part of his Independent Review of Banking Services in the UK. In March 2000 he published his report on Competition in UK Banking, which highlighted, among other things, concerns regarding competition, lack of innovation and price inefficiencies in the money transmission sector. For more on Competition in UK Banking visit the HM Treasury website.

4. The OFT will continue work on card schemes in the UK, which fall outside the remit of the Payments Industry Association (hereafter known as 'the PIA'). The OFT is currently considering whether the concerns raised in the Cruickshank report relating to card schemes in the UK are still relevant, and the extent to which there is further work to be done in this area. Further details will be announced in early 2007.

5. The OFT will discuss with APACS whether issues in the Cheques Report falling to 'the banking industry' will be carried out by APACS, the PIA, or the BBA. The OFT will write to the Chair of the PIA setting out these issues. The letter will be available shortly on the Payment Systems Task Force area of this website.

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