April 14, 2011 11:12 am

Inquiry reopened into ban on cheques

A group of MPs has claimed that it has been inundated by letters from the public saying that they rely on paying by cheque, ahead of a proposed ban on the payment method by 2018.

The Treasury Select Committee said it was reopening an inquiry into the future of cheques as a result, following an announcement by the UK Payments Council in 2009 that it would phase out use of cheques by 2018.

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Cheque use has fallen year on year since the 1990s and most major retailers will no longer accept them as a form of payment.

For banks, the cost of processing a cheque is around £1, significantly higher than other forms of payment such as direct debit.

But they remain popular with small businesses, sole traders, charities, schools and elderly customers. Last year over 1bn cheques were written.

Andrew Tyrie MP, chairman of the Treasury Committee, criticised the member organisation of banks and other payment providers which set the cheque end date for not presenting a sufficiently strong case.

“The Payments Council had seemingly forgotten about the millions of people who remain less at ease with the latest technology,” he said.

“Since our last inquiry we have been inundated by letters from the public telling us that they rely on cheques.

The Federation of Small Businesses said that banning cheques would be detrimental to businesses and customers that rely on them.

Ros Altmann, director general of Saga, financial adviser for over-50s, said the committee’s decision to look into the ban was a victory for common sense and the voice of older consumers.

“Our recent survey of 13,000 over-50s found that two thirds of respondents fundamentally disagreed with the decision to withdraw cheques,

“The most vulnerable of older people will often have no internet access and, if they are hard of hearing, may not be able to manage using telephone services either.”

Critics of the 350 year old payment method say cheques are inefficient and pose a security risk compared with payment methods such as chip and PIN cards.

Their use peaked in 1990 when 11m were written each day, falling to 3.5m a day in 2009 as customers preferred to transfer money electronically, or with debit and credit cards.

Tesco and Marks and Spencer both banned payment by cheque in 2008, citing the increased risk of fraud and slow transation speeds.

Cheque use is infrequent in the rest of Europe, with bank customers in Germany, Austria and Belgium preferring direct bank transfers and electronic payments.

The Payments Council said that it would only phase out cheques only if a viable alternative was found.

Suggestions for alterntives include mobile phone payment systems or online banking conducted via digital televisions.

However consumer groups said they were not convinced that any serious alternative had yet been found.

“The Treasury Select Committee’s focus should be on ensuring that alternative payment methods, that all consumers are comfortable with, are in place before cheques are consigned to the scrapheap,” said Which? chief executive, Peter Vicary-Smith.

The Payments Council said it would review the situation again at the end of the year.

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