The mention of a ‘cheque guarantee’ would probably draw a sea of blank faces from the younger generation. But for those who still write the odd cheque, it’s worth knowing that from 30 June the payment won’t be guaranteed.
If you make a payment by cheque the recipient obviously doesn’t actually know whether you have the money to cover the cost.
However, the cheque guarantee is basically a promise from the bank that the payment will be honoured, up to a certain level, even if the customer doesn’t have adequate funds in his or her account.
The level of guarantee ranges from £50 to £250 and it is usually shown on your debit card.
A cheque guarantee card represents a ‘transactional assurance.’ However from 30th June this year, this will be consigned to the banking scrapheap.
The 24 bank and building society members of the UK Domestic Cheque Guarantee Card Scheme will no longer guarantee that cheques are worth the paper they are written on.
This means that if an individual or business does accept a cheque which bounces, it will be up to them to reclaim the money either directly or through the courts.
The decision to scrap the cheque guarantee card was made back in 2009 by the Payments Council as cheque usage has been in steady decline for years.
Its figures show that, of the £1.4bn cheques written last year, only £95m (7%) were guaranteed.
This represents a decline of one-third on the previous year and a fall of 70% in the number of guaranteed cheques in the past five years.
Yes for the time being, although the cheque itself is soon set to follow the cheque guarantee card into the realms of extinction.
The Payments Council intends to phase out the method of payment entirely by 31 October 2018.
Theoretically however, you will still be able to use cheques up until this date although the number of firms and businesses accepting them is likely to decline further particularly now the recipient has no guarantee the payment will go through.
Current account providers are also phasing out the issuance of cheque books – rather than automatically sending them to customers, it will be up to the customer to request one.
The use of cheques is seriously dwindling.
Banks say the form of payment is down by a staggering 40% in the five years to 2010 and it is expected to drop a further 40% between now and 2016.
Most major high street chains and petrol stations including Sainsbury’s, Asda, Morrisons, WH Smiths, Marks & Spencer, Next, Tesco and Shell, also no longer accept cheques, while utility and energy suppliers strongly discourage payment by cheque by offering discounts in return for payment by Direct Debit.
However, the trusty chequebook will not disappear without a fight.
Critics claim that small businesses, charities and the elderly will suffer if – or more likely ‘when’ – cheques are abandoned as a form of payment.
Small business for example may have to resort to debit and credit card payments, which means investing in a card machine and forking out hefty charges for each transaction – especially those related to credit cards.
Older people, who are not geared up to internet banking, also rely heavily on cheques.
Charities, such as Age UK, are concerned that in the absence of this payment facility, vulnerable pensioners will be forced to carry large amounts of money around putting their security at risk.
Other charities have also joined the backlash against the abolishment of cheques, as many donations are still made this way via the post.
Is this decision about abolishing cheques final?Not really – the subject is still very much under heated debate.
Last week for example, the Payments Council met with the Treasury Committee of MPs.
Conservative chairman of the committee, Andrew Tyrie, accused the Payment Council of a ‘colossal error of judgment’ over the decision to scrap cheques before a suitable alternative had been developed.
Another MP, David Ruffley, slammed the Payment Council’s handling of the issue as ‘rank incompetence’.
However, the ultimate fate of the cheque is not scheduled until 2016 when the Payments Council will hold a ‘major review’.
It maintains that, if there is not a viable and working alternative to the cheque by that date, a new target date would be set.
However, momentum towards the ‘cheque graveyard’ is gathering pace on its own accord.
This week for example, following the impending end of the cheque guarantee card, South West Trains announced it will no longer accept the form of payment from this Sunday (26 June).
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