Business

Cheque guarantee cards 'could return'

Cheque guarantee number being written on the back of a cheque
Image caption The abolition of the guarantee spelled the end of putting a card number on the back of a cheque

The abolition of cheque guarantee cards is being reviewed and could lead to a return of the scheme.

The system, which ensured that some cheques up to £50 or £100 were honoured, ended at the end of June.

But the Payments Council, which oversees payments strategy, said it was looking at whether shops were less likely to accept cheques as a result.

A Commons Treasury Committee said that there was a case for the scheme, or something similar, to be brought back.

"Without such a scheme there is a risk that more and more shops and other bodies will refuse to accept cheques; the cheque would wither on the vine," the committee said.

The Payments Council said a return of cheque guarantees was not being ruled out, or ruled in, at this stage.

In July, the Council staged an about-turn and, because of widespread criticism, dropped its plan to scrap the use of cheques altogether by 2018.

Shakespeare hologram

The cheque guarantee, denoted by a Shakespeare hologram on a card, meant a cheque was honoured by a bank, even if sufficient funds were not in an account.

This had usually been limited to payments of £50 or £100. Many bank cards now only have a debit function, without the hologram of William Shakespeare on the back.

The guarantee only worked if the person paying handed over the cheque in person, and the card number had to be written on the back by the person receiving it.

This meant it tended to be used by tradesmen, such as plumbers, who charged small amounts and wanted to make sure they were paid.

In 2010, 60 million cheques were written with the number on the back.

Only 22 million of these proved to be valid as guaranteed cheques. These accounted for 3.5% of all cheques - including those outside the guarantee system - written in 2010.

Regulation

People who need to use cheques can continue doing so.

However, in its report on the future of cheques, published in August, the Treasury Committee demanded a rethink of the abolition of the cheque guarantee card.

This was echoed by watchdog Consumer Focus and charities such as Age UK.

The Payments Council said it was already conducting a review of the abolition of the scheme, the results of which would be available by the end of the year.

"If so indicated by the research, we will revisit the business case for the closure of the scheme," the Council said in its response to the committee's report, published on Wednesday.

However, it said that many retailers had stopped accepting cheques, not because of the end of the guarantee scheme, but because customers no longer used chequebooks.

At this stage it appears that an alternative scheme would be more likely than the return of the cheque guarantee system in its old form.

A Council spokeswoman said that a similar scheme could emerge from making the processing of cheques more efficient.

Meanwhile, the government said it would consider bringing the Payments Council, which is unregulated, under the umbrella of financial regulation. It will consult on the options in early 2012.

Treasury Committee chairman Andrew Tyrie said: "[This] is good news for millions of people who want to keep their cheque books. It will also offer consumers some protection against being bounced by the Payments Council into other changes that would disadvantage them."

The Payments Council said it had no issue with engaging in the regulation debate.

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