OFT hits out at bank clearing practices

On 26 February 2004, the OFT published its response to the Banking Code Review, recommending that changes be made to clearing practices and championing greater transparency in this area.

The Banking Code is a voluntary code developed by the British Bankers Association ("BBA"). The Code details standards of good banking practice and aims to encourage higher standard in banks' and building societies' dealings with UK customers.

The OFT has turned its spotlight on the issue of the 'float' used while certain electronic payments are cleared. At present, when dealing with standing order, telephone banking transactions and internet payments, banks normally remove the funds from the payer's account and retain it for two days before making it available to the payee's account. When dealing with cheques, the payer's bank generally retains funds until two days after the day of deposit, at which point the money becomes available to the payee's bank. This float can be used by the banks during the retention period to earn revenue.

The OFT is calling for interest to be paid on the float, so that banks would pay interest on standing orders, telephone banking transactions and internet payments until the money is credited to the payee's account and for cheques from the day of deposit.

The OFT has also recommended that the Code be changed to oblige banks to give their customers information regarding their clearing practices.

The BBA has responded to the OFT's concerns stating that "we all support greater transparency for consumers". The BBA's Banking Code review team will review all responses received and their report is due in September 2004.

Click here for the text of the OFT's response.

If you have any queries please contact Duncan Aldred on +44 (0)20 7367 2709 or at [email protected], or Sophie Elboz on +44 (0)20 7367 2958 or at [email protected], or Nick Paul on +44 (0)20 7367 2806 or at [email protected].