New cheque chargeback rules - from the horses mouth

realaledrinker · 3 November 2007 at 12:12AM

In response to a number of posts recently regarding the new rules for cheque clearance & chargebacks, this is an extract from our Intranet (I work for the Co-op bank)

The OFT 'customer promise' will bring more certainty to cheque processing. This means customers can be certain of when they will start earning interest on a new deposit, when they will be able to withdraw the deposited funds, and know that a cheque cannot be debited from their account without their permission, unless they are a knowing party to fraud.

The improved clearing times that make up the new OFT 'customer promise' are as follows:
(T = transaction day - the day when the cheque is credited to the account).

A maximum time limit of T + two days on clearing for value. This is when a customer can start to earn interest on money deposited via a cheque, or reduce the amount of overdraft interest charged.

A maximum time limit of T + four days on clearing for withdrawal for current and basic bank accounts, and T+ six days for savings accounts. This is when customers are able to withdraw money which is deposited via cheque.

A maximum time limit of T + six days on clearing for fate. This is when customers know that money paid to them by cheque cannot be taken out of their account as a result of the cheque being dishonoured, providing they are not a knowing party to fraud.

All UK banking institutions** are required to implement the new OFT 'customer promise' by 30 November 2007.

I am assuming a 'day' above means a banking day. If "T" is a Monday for example, "T + two days" will mean Wednesday of the same week.

**The extra day for clearing Scottish cheques & extra 2 days for NI cheques will be removed; all UK cheques will clear as above.

Milarky · 3 November 2007 at 11:48AM

All UK banking institutions** are required to implement the new OFT 'customer promise' by 30 November 2007

[14 November 2006]
"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."

http://www.oft.gov.uk/news/press/2006/159-06

"Clearing times
1.12 Maximum time limits on clearing for value, withdrawal and fate should
be implemented no later than November 2007. The Working Group
recommends that these maxima should be included in the March 2008
version of the Banking Code. Although the recommended limits represent
'maximum' clearing times, financial institutions will still be able to
compete in offering propositions to their customers that fall inside these
limits, as many currently do. [page 12]"

http://www.oft.gov.uk/shared_oft/reports/financial_products/oft868.pdf

That's what's so annoying about earlier statements from the OFT. They said cheque clearing improvements would be introduced "by November 2007" which was deliberately vague . You couldn't assume from that they meant "1 November" but they could have cleared up the confusion back then in 2005 or whenever (but I as say, I suspect it was intentional). What it seems to me is that the OFT has now put back the start date to 1st December because the banks have said all along (and no surprise there) that they really needed that extra month. This whole 'get tough with the banks' exercise - that was started back in 2000 - has been a classic example of rhetorical overstretch: you're in government, you think you've got all the handles of power, you go for easy option of inveighing against crusty old banking practices, you declare 'this must stop!', then you start to soft-peddle, you realise that banks also lend to the government (not directly) more often than the other way around, in fact they've been running the state effectively since George III's time and they will decide when 'this must stop', so you give the task to the 'regulator' who is never as independent as you hope they will be, mostly on account of knowing the people they regulate socially, and they then set up an (insider) 'industry taskforce' which agrees that it's all going to take much longer than anyone thought and they will have to go away and get back to you about that one...

derrick · 3 November 2007 at 4:09PM

realaledrinker wrote: »

A maximum time limit of T + six days on clearing for fate. This is when customers know that money paid to them by cheque cannot be taken out of their account as a result of the cheque being dishonoured, providing they are not a knowing party to fraud.

All UK banking institutions** are required to implement the new OFT 'customer promise' by 30 November 2007.

I received a few days ago some new T&Cs from Halifax bank dated October 2007, and the following is taken from that booklet;-

7.2 If you pay a cheque into your account and we let you take some or all of the amount of the cheque out of your account that does not mean that the cheque has been paid by the paying bank. If the cheque is returned to us without it being paid we may take the amount of the cheque out of your account.Cheques can be returned unpaid at any time after they have been paid in.

This suggests that they are working on the old rules, although strictly speaking as the booklet is dated October 2007 they are correct as the new rules do not come in until 30th November.

But it does seem a pointless exercise to send out revised T&Cs with such a glaring "error" that will need updating within a month.

I have spoken to Halifax and am told that they know nothing about it and that the booklet was approved by the FSA before sending out!

New cheque chargeback rules - from the horses mouth

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