My Lords, I beg to move that this Bill be now read a second time. I begin by reminding your Lordships that as chairman of a bank I have an interest to declare. But I could add that the Bill has the support of all the Scottish banks and, as far as I know, of all the non-Scottish banks which have to operate in Scotland. The Bill is designed to correct a longstanding and rather strange anomaly between the law in Scotland and in England and Wales. It is an inconvenience to customers, and also to bankers. I shall describe what happens at present.

When a cheque is presented in Scotland to a bank, if there are plenty of funds in the account of its owner there is no problem and it goes through in the normal way. However, as soon as the cheque is presented it operates as an assignment of the sum which is drawn in favour of the holder. That codifies a pre-existing principle of Scots common law.

As noble Lords will understand, that is all very fine when there are sufficient funds to meet the cheque. The problem arises when there are insufficient funds. In that case, the cheque, by its very existence, assigns the funds which are not available to be put aside. The bank is obliged by law to put aside that sum immediately, completely and irrevocably and not to make those funds available to the owner of the cheque in future. Therefore, from that moment the assets of the person writing the cheque are frozen, irrespective of any other circumstances.

The only way in which the position can be corrected at that point is if five conditions are met. The first is if the cheque is re-presented and met, because the drawer has sufficient funds. The second is if the holder returns the cheque to the drawer who can then demonstrate to the bank that the holder has relinquished his claim to the attached funds. The third is if the drawer can produce a written declaration from the holder that the claim has been relinquished. The fourth is that five years have expired and the fifth is that a judicial settlement is reached.

As noble Lords will be able to see, the situation places the provider of the cheque and the bank in an awkward position because the funds concerned are frozen. If, for example, a small company is involved, its business can be absolutely wrecked until all the conditions are met and the matter resolved.

The position in England and Wales is much more simple. If the drawer of a cheque has insufficient funds and the bank is not prepared to allow an overdraft, the cheque is simply returned to the payee. The payee must then deal with the debtor directly without involving the bank. Even if several cheques are presented simultaneously which, in aggregate, exceed the funds available, the bank is free to satisfy those cheques for which there are adequate funds and to return the rest. That situation occurs frequently. In other words, the present law outside Scotland is very flexible. The banker and the customer can arrange matters themselves and, it is hoped, no harm is done to the original writer of the cheque.

This matter has been under discussion for a long time. It was of major interest to the Jack Committee, which some years ago was asked to opine on these issues. That committee strongly advocated a change in the law. Therefore, in Clause 1 the Bill abolishes the funds attached rule for cheques. Subsection (1) abolishes the funds attached rule so far as it relates to cheques. Subsection (2) explains the funds attached rule by describing the rule in Scots common law: the presentation of a bill of exchange to the drawee operates as an assignation in favour of the holder of the bill of the funds for which it is drawn or, where the drawee holds insufficient funds, of the amount of those funds. Subsection (3) completes the picture by disapplying Section 53(2) of the Bills of Exchange Act 1882 in relation to cheques. Clause 2 contains supplementary provisions. I do not believe that I need go into those for your Lordships at this moment. Clause 3, of course, contains the Short Title.

I believe that this is a sensible and long overdue "putting right" of something that has caused quite a lot of inconvenience. I am informed that there are as many as 100,000 cases a year in which customers experience some form of inconvenience from the present anomaly. The Committee of Scottish Clearing Bankers estimates that attachment of funds procedures cost their members as much as £225,000 a year. Therefore, if the Bill were passed, it would remove an inconvenience and save a great deal of money, not only for banks but for their customers. I very much hope that your Lordships will feel that it is a worthwhile measure. I beg to move.