Mr Major’s Written Parliamentary Answer on Banking Services – 29 March 1990

Below is the text of Mr Major’s written Parliamentary Answer on Banking Services on 29th March 1990.

Mr. David Davis To ask the Chancellor of the Exchequer when he proposes to publish the Government’s response to the report of the review committee on banking services law and practice.

Mr. Major The Government’s full response to the report of the review committee is published today in a White Paper “Banking Services: Law and Practice” Cm 1026.

The review committee was commissioned by the Government, jointly with the Bank of England, in January 1987 to undertake a full review of the legal framework for banking services. The committee was chaired by Professor Robert Jack CBE, and the other members were Mrs. Liliana Archibald and Mr. Geoffrey Taylor. Their report, which was published on 23 February 1989 (Cm 622), provided a very clear and comprehensive critique of the existing law. The Government are extremely grateful to the committee for all its work in producing the report.

The committee found that the legislative framework had stood the test of time remarkably well, despite the very rapid changes seen in banking in recent years; there were no major deficiencies or gaps, but the committee identified a number of areas where banking practice could be improved and where they felt the law might be usefully clarified or tightened up. The Government made it clear when the committee’s report was published that in considering their response to its recommendations, they would wish to take full account of the views of those who would be affected by the proposals, and would, therefore, consider carefully the implications for bankers, their customers and the general public interest. This the Government have done. The names of those who submitted comments on the review committee’s report are set out in the White Paper.

The Committee’s central recommendation was, in fact, addressed to the banks and building societies, rather than to the Government. It was that they should prepare and adopt a code of banking practice, aimed at ensuring that customers were made fully aware of the basis on which banks or building societies would conduct their dealings. The code would, for example, specify that customers should be given information in clear and simple language about the terms of their contract with the banker and the rights and obligations that apply on both sides; customers would be told of their rights to privacy under the law and the very limited circumstances in which any information about their personal finances may be passed on; customers would be told how to lodge a complaint if that proved necessary, how such complaints would be dealt with, and how matters might be referred to the relevant ombudsman; they should be told what banking charges might be levied in what circumstances; and they should be given a simple explanation of the timing of the clearing cycle and when they might normally expect funds from a cleared cheque to be available.

The Banking Information Service announced on 1 March 1990 that an independent committee under the chairmanship of Sir George Blunden (former deputy governor of the Bank of England) had been set up to oversee the preparation of such a code by the British Bankers’ Association, the Building Societies Association and the Association for Payment Clearing Services. The aim would be to get the main sections of the code in place by early 1991. The Government warmly welcome this initiative, and in particular welcomes the fact that the banks and building societies have undertaken to consult the consumer interests fully before the code is introduced. The White Paper comments on a number of issues which the Government expect the banks and building societies to wish to consider in the preparation of the code, in line with the recommendation of the review committee. These include notification of bank charges, credit marketing and customer privacy.

The review committee made a large number of other recommendations, some of them on highly technical points of banking law, and some involving codification of existing case law or consolidation of existing legislation. In drawing up their response, the Government have carefully considered the comments of interested parties and proposed legislation only where some change is justified and where the intended effect cannot be achieved in another way, such as through the proposed code of banking practice. In general, the Government have accepted the spirit, if not the detail, of most of the committee’s recommendations.

The points on which the Government will legislate in due course are set out in annex 9 of the White Paper. They include extending to all payment cards the present £50 limit on customer liability for losses and the ban on unsolicited mailing of cards and PINs which at present applies only to credit cards; tightening up banks’ liability for the failure of electronic funds transfer equipment; clarifying the legal status of the various crossings and markings such as “account payee” on cheques; allowing for the “truncation” of cheques (that is, allowing banks to exchange electronic information about cheques and not the actual pieces of paper); amending and updating the Bills of Exchange Act; and dealing with a number of other detailed points raised by the Committee. These proposals will be implemented when other pressures on the legislative timetable permit.

The review committee made the key point in their report that in considering any proposals in the field of banking services it is important, above all, to preserve flexibility, and to avoid cramping competition and innovation by excessive regulation. The Government wholeheartedly endorse that view. In recent years, it has been competition within a flexible regulatory framework that has benefited the customer most. It is from this source that further improvements are most likely to come; and that is the primary principle underlying the Government’s response to the review committee’s report.