Banks will have to clear cheques faster under new proposals.
At the same time cash transfers via telephone, the internet or standing orders – which currently take three days to clear – will have to clear in a matter of hours.
The moves are part of a new scheme put forward by an Office of Fair Trading (OFT) task force and backed by the Treasury.
The change will take effect by November 2007 and will be monitored by a new Payments Industry Association.
Interest will be paid on cheques no more than two days after they are paid in and the money will be available to withdraw after four. After six working days, customers will be able to assume that the cheque will not bounce.
Ashleye Gunn, Head of Money Research at Which? said: ‘We have been calling for improvements to the cheque clearing cycle for many years. Whilst progress has been a long time coming, today’s announcement is a step in the right direction.
‘The increased certainty on cheque clearing times is good news for consumers. In fact, some consumers could even see themselves in a better financial situation with cheques cleared quicker than they are now.
‘We are particularly pleased that if consumers receive fraudulent cheques, where they have not been a party to the fraud, they can no longer be taken back by a bank after six days. This offers important protection for consumers.’
Economic Secretary Ed Balls said: ‘Today’s announcements are good news for consumers and small businesses who will benefit from faster electronic payments, and more certainty and greater transparency when making cheque payments and good news for the payment systems industry which has worked hard to develop an innovative model of self-governance in line with the government’s better regulation agenda.’
The Payments Industry Association will be set up in early 2007 and chaired by Brian Pomeroy, a former senior partner at Deloitte Consulting.
He said: ‘This new body will manage and deliver a national strategy for payments in the UK and I look forward to this new challenge.
‘Before the formal launch, I will be ensuring that the board has top quality banking and independent representatives in place to ensure that its work is taken forward effectively.’
Ashleye Gunn said of the new Payments Industry Association: ‘Which? welcomes the establishment of the Payments Industry Association as a direct result of consumer concern. However, we will be watching this association closely to ensure it is meeting its objectives at all times.’