Does section 35 deal with account payee only cheques?
SECTION 35.
Question proposed: "That section 35 stand part of the Bill."
Yes.
I raised this matter on Second Stage and the Bankers Federation also commented on it. While it recognised that it would have positive benefits in terms of preventing fraud, it also realised that it would affect those who do not have bank accounts as they would be unable to cash an account payee only cheque. The Minister said on Second Stage that was not the intention of the section. Perhaps she could clarify that. I have no difficulty with the section if it prevents fraud, but many people do not have bank accounts so they would not be able to cash account payee only cheques. Perhaps the Minister could clarify how this will operate.
The purpose of this section is to ensure that if someone writes a cheque to someone else and crosses it, no one can have the use of that cheque between the time it is written by the payer and received by the payee. For example, if a cheque is handed by the payer to an intermediary prior to it being given to the final recipient — the payee — and the intermediary cashes it, he or she, and possibly the bank which cashed it, commits an offence. This could give rise to difficulties for recipients who, having received the crossed cheques safely, have no bank accounts in which to put them. It should be noted, however, that according to the Attorney General's Office, the term "account payee" should not be interpreted literally. This does not mean that the recipient or payee must be the possessor of a bank account.
What is being legislated for is the protection afforded to the payment as between the payer and the payee. For example, in some cases banks will either cash the cheque or the payee will endorse it to someone else who will pay him and subsequently cash it in the endorsee's bank. That is the current situation. This practice can continue under the new legislation. According to the Attorney General's Office, there is no legal blockage which would prevent a bank cashing a crossed cheque or such a cheque endorsed to another. It could be asserted that in the revised circumstances banks might be less likely to do so. This is a matter for the banks. The problem is not insurmountable. The same situation obtains in the UK and the difficulties have been overcome in various ways.
It would be open in some but not all circumstances for payees to ask that cheques payable to them should not be crossed. In such cases, the protection afforded by legislation would not apply. Section 35(a) amends the Bills of Exchange Act, 1882, to confer legal status on cheques marked "account payee only". Such cheques may be paid only into the account of the payee and not otherwise cashed or transferred. The IBF has had discussions with officials on this difficulty and they are reasonably satisfied with the position we now present. With regard to any difficulty or interpretative difficulties which they might have, the UK has followed a similar route and the difficulties have not been insurmountable there.
I am sure people within the banking system are aghast that we do not understand many of the matters we are speaking about this morning, but this is one which impacts upon the public at large. I understand that in the UK, which has undergone this change, there is a thriving business for the encashment of account payee cheques at a discount of about 4 per cent on the basis that the company encashing them indemnifies the bank against any loss.
The IBF made its submission and it has been in discussion with the Department of Finance in this regard, but it is really the same people talking to one another. If banks start interpreting this literally, then, to put it bluntly, there will be more business for banks because more people will have to open bank accounts. If I represented the lobby group on behalf of banking officials I could condone and support that but as a public representative with a far larger constituency I do not think it would necessarily be a good thing. I remain to be convinced that this provision is necessary. I can understand that the Central Bank Bill, 1996, and the Department of Finance would be anxious to eliminate and prevent fraud but the logical result in this regard must be that more people must open bank accounts which, therefore, increases business for banks which, in turn, increases the number of employees and banking officials who might be needed. I have not a particular problem with that either, from a bank official's viewpoint and that of the banks, but it may impose a great imposition on the ordinary person living in Ballyfermot, Dublin, or somewhere in County Kildare.
Who pushed for this section? Is there something wrong with the present system that we should know about?
It was the Irish Insurance Federation which pursued this. When I say that, the Deputy will know immediately why. If I can be blunt, solicitors have a habit of holding on to insurance cheques for a period of time before passing them on to the payee and banks were cashing them. This is to ensure that the payee gets the immediate benefit from the payer of the money due to them.
These provisions in section 35 have been requested by the Irish Insurance Federation on foot of a similar change in the law in the UK. The IIF wished to ensure that cheques made out to policyholders and transmitted via insurance brokers, solicitors, accountants, and other professional intermediaries must be handed on to the client and cannot be converted to the use of the intermediary. The federation believes this is a basic safeguard for the ordinary investor which will reduce considerably the fraudulent conversion of clients' money.
There is no legal reason, to come back to another point the Deputy made, that banks cannot continue to cash crossed cheques across the counter. The Deputy is interpreting that this may be a way of exerting pressure to open more accounts. That has not really been the reaction in the UK, where more than 3,000 subsidiary branches in rural areas have closed down in the rationalisation of the banks and there are now no longer any full banking facilities in many towns and villages in England. As a result, private sector cheque encashment offices have opened up. That is a private sector response to a perceived customer need because there is no bank.
That is a slightly different proposal to what we are talking about here, where Deputy McCreevy is expressing concerns about the banks being unwilling or concerned about cashing these cheques. There is already an encashment office on Dame Street, Dublin, and this problem does not arise — the law has not been changed. I suggest that these cheque encashment offices will be a private sector response to a perceived market need anyway.
The Minister of State should think about this again before we come back to it on Report Stage. I can see the logic of it from the reasons outlined by the insurance federation but that matter could be addressed by provisions of other Acts, so that they would not be entitled to hold on to money and not pass it on fairly quickly. I can think not only of insurance companies but of a well celebrated libel case in which moneys which were paid to a solicitor acting on behalf of a newspaper were not passed on, so there are a wide variety of business transactions involved.
It happens with property transactions too. They take their slice out before passing on the balance.
Absolutely. When solicitors lodge money through the client's account, that is all protected by the solicitor's accounts, regulations, etc. They stop their fees, costs, etc., and pass on the net amount to the client. Therefore, I am not convinced the existing law or other regulations cannot be put into effect and it necessitates a change such as this because the whole thrust of Government policy in other areas is to facilitate ordinary people in payment transactions. For example, when I was Minister for Social Welfare, we tried to encourage people to operate the social welfare payment system through the post offices, and this was continued by successive Ministers.
I said on Second Stage this was in danger of erecting another barrier between rich and poor and I fail to be convinced by the banking sector that it will not interpret this in a legal fashion. There may be certain banks around the country which would not interpret it in that way but, the way banks operate nowadays, a directive would come from headquarters to say the bank must start interpreting it in such a way because it cannot allow flexibility in this area which would not apply in another and it would leave the bank open to all sorts of charges.
I can give the Minister of State an example of which I have had experience in the past two years in regard to the money laundering legislation. If one goes into any bank nowadays, one will see a clear notice stating that one must comply with the provisions of that legislation. It has got to a ridiculous stage and it is not the fault of the bank officials. When I went into a bank to open an account for one of my children on his 18th birthday, the official in the bank where I am well known, who happens to be a friend of mine, said the child would have to come in later with a passport so that they could photocopy it and put it on the file. The amount of money involved was very small as it was a birthday present but when I said that this seemed quite ridiculous, the official replied that was how they had been told to interpret the opening of bank accounts for everybody under the money laundering Act. That is happening all over the country and it is not the fault of the bank officials. I doubt if it was ever intended by the Legislature in the legislation on money laundering, but that is what is happening.
If this provision is implemented, I guarantee that banks will not honour "account payee" cheques for people who do not have an account. What will happen is that other institutions or businesses will cash the cheques. The Minister of State should look again at this section. I do not believe the reasons put forward by the Irish Bankers' Federation are sufficient grounds for including this section. There is no need for this section which is contrary to Government policy in various areas. It will not impact on the Minister of State, Deputy Wallace, Deputy Cullen or me but on the ordinary Joe Brown or Mary Jones who get a cheque occasionally and who do not have a bank account. I ask the Minister of State to consider deleting this section on Report Stage.
I reiterate that there is no legal impediment on the banks in cashing such account payee cheques. Perhaps it is a matter for the banks to get their act together on this and not inconvenience their customers. As regards the focus on quality customer services and a customer service initiative in the marketplace, the banks are leaders in this field. Many of the banks are trying to outdo one another in terms of the customer service they provide.
And charge for it too.
I know we pay for it. I was irate when I was offered mulled wine and mince pies in my bank at Christmas. The impression was that it was on the house but I knew it come up as a charge on some account. Banks should get their act together and not inconvenience their customers. We should all put a marker down to that effect. There will be no legal impediment if this is passed on the banks in accepting such account payee cheques.
These people would not be their customers.
Even when a person does not have an account.
These would be account payee customers.
I accept that.
I have noticed in the past couple of years that with demands on time and cutbacks the banks do not want to cash cheques for the ordinary Joe Soap.
They get transaction charges for doing so.
From my personal and political experience, banks to not want to cash a £50 cheque made out to a non-customer because they do not want queues or trouble and will put obstacles in the way of people. I am sure banks have found that this activity does not bring in much money.
This section will not change that. Banks are reluctant to do so at present even without this provision. However, if this section is passed, it will not make them any more or less reluctant to operate this service. There is another reason they are reluctant.
I predict that it will make them more reluctant.
They might try to use it as a cover, but there is no legal impediment in the Bill to them continuing to do what they have always done.
There is no reason for this section and it will be no loss to the Bill or to anybody if it is deleted. If, in a few years the matter is reconsidered, it could be brought forward again.
A strong case has been made and accepted by the Irish Insurance Federation in relation to cheques made out to policyholders and transmitted by insurance brokers, etc. They have insisted that they must be handed on to the client and cannot be converted for the use of the intermediary. That is the reason we tabled this amendment. I accept the Deputy's concerns. I would go as far as to say he is probably right. I have no doubt the banks will use this section to try to stop providing the service to non-account holders in relation to account payee cheques that they are reluctantly providing at present.
We must make it clear that this section will not prevent the banks continuing what they are doing. If the banks try to use it, we will have to point that out publicly. If the banks have other reasons for not wanting to provide the service — I suggest there may be some -they should be honest about it and not use this section as a fig leaf. There is no reason this amendment should affect the present status of the service banks are giving to non-account holders at present.
Surely the case put forward by the Irish Insurance Federation does not stand up. Insurance people could ensure a cheque is sent to the client directly. I do not see the reason a section should be included in this Bill which fundamentally changes things simply to help the Irish Insurance Federation deal with a problem. We are using banking legislation to get help them with a difficulty. This section is not needed at this time.
I have not made a strong case on any other section of the Bill. This section is unnecessary and the Irish Insurance Federation's problem could be dealt with without including a catch-all section which will affect 99.9 per cent of people who do not get cheques from insurance brokers.
Is there a relationship between this section and operations in credit unions as regards account payee cheques?
Apparently not.
I still believe the Minister of State's analysis is correct and she might be well advised to consider redrafting parts of the section. It should be made clear that there is no legal imperative on the banks in this regard.
Nor should they use this section to discontinue a service which they are reluctant to give even before this change in the law is made.
It might be worth looking at it again.
I am unlikely to be in a position to change this but I will certainly refer to it again on Report Stage and see if the wording can be tightened or if an additional clause could be included, but I am not sure this can be done.
My advice to the Minister of State is not to go ahead with it.
I will look at it from that point of view and I will put it to the officials to see what would be the implications of not going ahead with it. We will have to weigh both sides of the argument. The UK authorities decided there was a big problem in terms of intermediaries intercepting cheques in the insurance world. I mentioned solicitors handling cheques and property deals. We must be frank by saying that where they have power of attorney, they do so properly. I do not want to imply that there is something improper about what solicitors do but we are talking about instances where there is no power of attorney in relation to the intermediary and solicitors hold cheques, receive interest and pay the money some time later.
Is the section agreed to?
We are opposing the section, but I will come back to it on Report Stage.
I have said I do not mind coming back to this on Report Stage, although it is unlikely that I will be able to concede anything. However, I would like to put my concerns on the record lest the banks use this as a fig leaf. If the section is passed, can we come back to it on Report Stage?
The Minister of State could table an amendment on Report Stage to delete the section.
If I do not table an amendment, can I speak on the section?
No, because we can only deal with amendments tabled on Report Stage and not sections.
I do not want to be disingenuous and mislead the House. I would be prepared to discuss an amendment on Report Stage if Deputy McCreevy were to table one. The ball is in his court.
Question put and declared carried.
Sections 36 to 46, inclusive, agreed to.
NEW SECTION.
I move amendment No. 23:
In page 25, before section 47, to insert the following new section:
47.—Section 3(2) of the Consumer Credit Act, 1995, is hereby amended by the insertion of the following paragraph after paragraph (a):
‘(aa) any transaction or proposed transaction conducted in the course of relevant trading operations (within the meaning of section 39A (inserted by section 17 of the Finance Act, 1981) of the Finance Act, 1980, or within the meaning of section 39B (inserted by section 30 of the Finance Act, 1987) of the Finance Act 1980.'.".
The purpose of this amendment is to remove from the scope of the Consumer Credit Act, 1995 companies in the IFSC or the Shannon Free Trade Zone in respect of trading operations which have received certificates for corporation tax at the special 10 per cent rate under the Finance Act, 1980. These trading operations are conducted by such companies in non-Irish pounds by persons not normally resident in the State.
Two anomalies in the Act are being addressed by this proposed amendment. First, some companies in the IFSC and the Shannon zone come under the scope of the powers of the Director of Consumer Affairs under section 149 of the Act. Under this section companies must advise all of their charges, including corporate charges and changes therein, to the director. Given the international nature of the business of these companies, their inclusion in the scope of the Act was unintentional and it is proposed to remove them accordingly.
Second, Part VIII of the Act, dealing with the licensing of moneylenders, could apply to some loans advanced by the IFSC or Shannon companies whose trading is subject to the 10 per cent corporation tax regime. Given the international orientation of their business, specific exemption was made in respect of IFSC companies in relation to the former moneylending regime under the Moneylenders Act, 1900. The proposed amendment will similarly exclude IFSC and Shannon companies from the scope of the Consumer Credit Act, 1995.
Amendment agreed to.
Sections 47 to 54, inclusive, agreed to.