Banks warned over cheque clearing

BANK of England Governor Mervyn King has expressed 'disappointment' at the time it takes for banks to clear cheques and electronic payments.

King told last night's Mansion House bankers and merchants dinner it takes longer to clear payments in the UK than any other G10 nations.

'Together with other members of the OFT task force, the Bank will actively explore ways in which that performance can be improved,' he said.

This Is Money, in partnership with Financial Mail on Sunday, has long campaigned for banks to smarten up their act. Banks have the technology to clear cheques and electronic payments instantly, but many hold on to customers' money for between three and ten days. They can make millions of pounds investing it on interbank markets.

In total nearly 12m cheques and electronic credits are cleared each working day, according to the Association for Payment Clearing Services (Apacs). However, its research shows that reliance on cheques is waning. Overall cheque volumes are expected to continue to fall from a level of 2.8bn in 1999 to about 1.7bn by 2009.

Sandra Quinn, director of corporate communications at Apac, said: 'We were surprised they raised this issue in such a public way. The Bank of England is a member of the Cheque and Clearing Board which is the right forum to raise these concerns.'

The organisation says the comparison with G10 is unfair as it claims that cheques are only widely used in the UK, France and Ireland.

Apacs also claims consumers are net beneficiaries of the cheque clearing system as they profit from the delay in their own cheques being paid in.

As for electronic payments, it says debits should not take longer than 48 hours in a three-day working period.

'Your bank may allow seven or eight days for a credit card payment to be on the safe side,' Quinn said.

Little has changed in the four years since Don Cruickshank's critical report into the banking industry.

Cruickshank said Apacs, Bacs and other bank clearing systems were operating as a cartel and called for an independent regulator, Paycom, to protect consumers. That idea was dropped by the Government, which handed the job to the Office of Fair Trading.