Clause 11

Dormant Bank and Building Society Accounts Bill [Lords] – in a Public Bill Committee at 12:15 pm on 14 October 2008.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I beg to move amendment No. 3, in clause 11, page 6, line 37, at end insert ‘and,

(c) the bank or building society in question has exhausted all reasonable efforts to inform the account holder of the funds that bank or building society holds on their behalf.’.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to discuss Government amendment No. 16.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

The amendment would create a statutory obligation for banks to attempt to reunite dormant accounts with their owners. It amends the definition in subsection (1) by adding another paragraph to require the financial institution to have

“exhausted all reasonable efforts to inform the account holder of the funds that bank or building society holds on their behalf.”

That would ensure that financial institutions exercise appropriate responsibility towards account holders before transferring their money to a reclaim fund. The current system for allowing people to check whether they have dormant accounts centres around the website, That presupposes that the account holder knows which institutions their account is with and believes that they have a dormant account in the first place. It is also reliant on voluntary information from the institutions, which can be patchy, and on the account holder being able or willing to use a computer, which we should not assume will automatically be the case. I am not trying to undermine the Bill as a whole but to ensure that the interests of depositors are safeguarded to an even greater degree than it currently envisages by putting that greater obligation on the banks.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I wonder whether the hon. Gentleman could expand on the wording of his amendment where he says that

“the bank or building society in question has exhausted all reasonable efforts to inform the account holder.”

What does he believe that “all reasonable efforts” might encompass? For example, one bank has employed a tracing agency to track down the owners of accounts  holding more than £1,000. Is that reasonable, or would it be expected to go further to include lower-value accounts?

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

The hon. Gentleman raises a reasonable point. There is a useful debate to be had over how much effort the financial institution should make. Many people take the view that the effort should match the size of the deposit in the account. The process may become not self-defeating but less obviously purposeful if it costs more to try to trace the account holder than the total value of the deposit. If the account held a higher amount of money, I would envisage the efforts going somewhat beyond writing to an account holder at an address at which he resided 15 years or more ago and having a website that he or she could access if they so wished.

There will be several ways in which the banks go about trying to contact longstanding customers who have not been in recent contact. The essential point is that at the moment the banks have insufficient incentive to try to reconnect the dormant bank account holder with his or her dormant bank account and that the Bill does not give them any great incentive to do so. After all, what does the bank stand to gain from tracking down a person who has not been in contact for 15 years or more? Very little. I fear that the bank will do the bare minimum in order to be seen to be doing the right thing and that that will not be good enough in the interests of the individual account holder. I would be pleased if the Minister could assure me that greater and more strenuous efforts will be made.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

I want to say a few words about the amendment, with which I have a certain amount of sympathy. I also want to put on record the specific concerns of a constituent of mine—Mr. Manzetti of Belvedere house in Grosvenor road, Westminster—which were answered in part by an exchange of correspondence with the erstwhile Economic Secretary to the Treasury that took place in the summer. Having worked in the insurance industry for more than 35 years, Mr. Manzetti is worried that not enough is being done to seek out the owners of assets, along the lines of the proposal by the hon. Member for Taunton. In a modern world in which there are websites and far more detail that can potentially be demanded and accessed by the public, banks and building societies are becoming more proactive in their efforts to hunt down the owners of assets. Mr. Manzetti’s experience of this world leads him to believe that there has been a reluctance on the part of insurers and others to follow up unclaimed benefits or dormant accounts. There is still concern as to whether that process has been adequately open.

As the hon. Member for Taunton said, there is now a desire for companies to be required to list on freely accessible websites the names of all holders of unclaimed assets and for part of the cost of that exercise to be borne by advertising of the company’s products on those sites. At the moment, as the Minister will be aware, there is a pretty extensive charging regime of some £18 per search. That is a fairly significant disincentive unless the cost is to be paid by an individual who is aware of some unclaimed assets for him or his family.

I also want to put on the record, more broadly, that the Bill provides an opportunity to improve on the reunification process and the procedures for ensuring  that dormant accounts go back, where possible, to the correct person. As is betrayed by his surname, many of Mr. Manzetti’s ancestors come from various parts of Europe, including Italy, Germany, France and the Czech Republic, and several accounts are unknown. That will apply not only to many of my constituents but to those of hon. Members throughout the country. The question is whether enough work is being done by banks and building societies. Where are the incentives to ensure that a proper job is done instead of merely making “all reasonable efforts”?

In her letter, which is dated 10 August, the erstwhile Economic Secretary mentioned

“tracing systems being made more user-friendly.”

Can the Minister give some indication as to the nature of those tracing systems and how they can be more user-friendly in a world where people will increasingly access websites through the internet? What process will be put in place to ensure that we do not have a system suitable only for 2008 that becomes defunct in the light of new technology in the years and decades ahead? Is there a commitment from the Government, alongside the banks and building societies, to ensure that this information is kept up to date, as far as possible?

I thank you for your indulgence, Mr. Benton, in allowing me to stray slightly off the line, as I felt that the issues raised by my constituent could best be discussed under clause 11. I hope that the Minister is able to comment on them. I am happy, if need be, to forward the correspondence that was responded to by the then Economic Secretary, who is now Under-Secretary of State for Work and Pensions, the hon. Member for Burnley (Kitty Ussher).

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

This is an opportunity for us to spend a little time thinking about the precursor to the work that the reclaim fund and the Big Lottery Fund will do with dormant accounts. Consumers will want to know that banks have taken all the appropriate steps to ensure that they identify the rightful owners of accounts. The provision is important, because it will give customers confidence that this is not just an exercise to take money out of their accounts and put it in the reclaim fund to be used for the causes mentioned in later clauses. It is important to consider the approach that the banks and building societies use to identify dormant accounts and reunite them with their owners.

Having heard the remarks of the hon. Member for Taunton, I am not sure whether I support his amendment. The word “reasonable” is difficult to explain and be clear about. Consumers will expect banks take all the appropriate steps that they need to take to identify account owners. The debate that we have had about unclaimed assets and dormant accounts over the past six years, since the first document on such assets was first published, has forced, or encouraged, institutions to consider how they identify those accounts and what steps they should put in place to reunite the accounts with their owners. National Savings and Investments, the Building Societies Association and the British Bankers Association have worked together to set up My understanding is that there have been many more visits to that site, and searches initiated on it, than there were on the previous websites available to bank and building society customers. It appears to have stimulated a great deal of interest in the  minds of customers about whether they might have accounts and about initiating the process of searching for them.

Some banks have employed tracing agencies, particularly for larger accounts and customers, and they appear to have been successful. It is interesting that the banks have made quite a lot of progress in whittling down the amount of their unclaimed and dormant accounts. On Second Reading, other hon. Members and I said that HBOS had made significant progress. We want that to continue. No matter how much we want to go to the good causes, we want the banks to have as their first priority trying to reunite those assets and getting their customers to claim them. In the time between now, or Royal Assent, and the setting up of the reclaim fund, we all want the banks to work carefully and diligently to ensure that that takes place. We will touch on the triennial reports in the next series of debates, but we certainly want a mechanism to be in place that shines a light on the activities of institutions in reuniting customers with their accounts.

I am concerned about Government amendment No. 16, deleting subsection (3), which was added in the House of Lords. That subsection would put the onus on the banks to use the knowledge of their accounts, account holders and any other relevant matters in determining dormancy. It would try to encourage banks to take a holistic approach to their customers, to determine whether there was any evidence that they were aware of, or should be aware of, to suggest that the account was not dormant.

Amendments tabled in the Lords stemmed from a series of discussions that tried to define dormancy more carefully. Those amendments were unsuccessful, because there was, rightly, a concern that people did not want statutory impositions placed on the scheme, to try to preserve as far as possible its voluntary nature. Lord Davies of Oldham said in the other place:

“The bank can follow its normal procedures for reaching a judgment on whether an account is dormant”—[Official Report, House of Lords, 10 January 2008; Vol. 697, c. GC344.]

There is some uncertainty, and my amendments Nos. 47 and 46, which we will come to next, highlight some of the dormancy issues. I am not clear in my own mind whether the banking code, which is the fall-back position in this situation, is enough of a prod to ensure that the banks deal with their customers on a fair basis when looking at dormancy. Under the code, each bank will have to publish its own policy on dormancy, but that is voluntary in nature, like so much of the scheme. I am not sure whether that will provide adequate protection for customers, who might see their accounts being declared dormant. Subsection (3), from our perspective, tries to provide some of that protection for consumers. We are disappointed that the Minister seeks to delete the amendment made by the House of Lords.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury 12:30, 14 October 2008

I shall speak to Government amendment No. 16 to clause 11, which refers to the definition of dormancy. It allows us to have a number of debates about that definition and to make some important points about the priority that we all attach to reuniting customers with their savings.

The Government have made it clear—this is a widely shared view in the House— that reuniting customers with their money should be a priority for the scheme and that, whenever possible, efforts should be made to ensure that customers are reunited with money that is rightly theirs. That is one reason why we welcomed the launch of by the BBA, the BSA and NS&I early this year, and the industry’s commitment to reach out to hard-to-reach and disadvantaged customers. The website has the potential to provide an efficient and effective means for customers to trace their lost accounts and for concerns about personal data to be respected.

As we have heard, since its launch on 30 January, the site has had nearly 190,000 search forms submitted for money left unclaimed in a dormant bank, building society or NS&I account. The Government are always interested in ideas for improving such arrangements, but it is obviously a matter for banks, building societies and NS&I to ensure that they have effective arrangements in place.

To reinforce a point that I made on Second Reading, searches are possible through multiple institutions. Website guidance suggests that, if someone is searching just one institution, it might be best to approach it direct, but multiple searches are allowed. As the hon. Member for Fareham said, there has been an increase in the number of people who have been reunited with their money.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

Given what the Minister says, is he comfortable with the explosion in numbers since the website was set up at the beginning of the year? Does he believe that it is adequate and open enough or that it is simply a playing of the numbers game? Does he understand some of the concerns mentioned by Opposition Members about the fact that there seems to be a lack of incentive on the part of too many of those who will benefit from the system to put in place an entirely open one? At what point will he be satisfied—perhaps it has been reached—in his own mind that enough is being done to ensure that dormant accounts are being reunited with their owners?

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

As I said, I am always interested in ideas for improving the arrangements for reuniting, but I acknowledge the step change in activity this year. We want that progress to continue, and I shall certainly be interested in talking to banks and building societies about their reuniting activities. It should be a priority for them to ensure that they reunite customers with their money, and we all share an interest in ensuring that they are doing all that they reasonably can.

The hon. Member for Cities of London and Westminster raised a specific constituency issue, and I shall trace the correspondence to ensure that the Government are taking any action that we should be taking. To reinforce the point, banks and building societies are committed to reuniting and have made significant efforts to do so.

On the point made by the hon. Member for Fareham, transferring accounts that are not truly dormant is not in the interests of banks and building societies, because they would have to bear the up-front costs of any subsequent reuniting.

The hon. Member for Cities of London and Westminster made a point about insurance companies paying for tracing services. As he knows, the Bill is about the  dormant accounts of banks and building societies only—other assets and institutions pose questions for another day.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The Minister said that it would not be in a bank’s interest to transfer accounts that are not dormant because they will bear the up-front cost of the transfer. However, when an account is transferred to the reclaim fund, the cash and liability are in effect transferred as well, so there is no cost to the bank.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

Certainly administrative and time costs are associated with transferring funds to a reclaim fund and then back again. The hon. Gentleman is right that the assets and liability are transferred, which is one of the purposes of the Bill. I wish that I could reassure him on Government amendment No. 16 and why we want to delete subsection (3). I emphasise that we intend genuinely dormant bank and building society accounts lost by the account holder to be transferred into the scheme, but not accounts that are simply rarely used or where the account holder is still aware of their account. That will minimise the unnecessary costs associated with returning accounts to customers after a transfer.

We believe that our definition of dormancy is simple, clear and straightforward: an account open throughout a period of 15 years with no customer-initiated transactions. However, the scheme allows banks and building societies the flexibility to refer to customer-initiated activities that might indicate that an account is not dormant even where there have been no transactions on the account. If the institution is aware of activity, such as the requesting of periodic statements, we fully expect institutions not to transfer accounts. Furthermore, those with particularly strong or individualised systems can take that into account in their individual policies. That flexibility is one the scheme’s great strengths. I am happy to confirm that institutions will be expected to use their knowledge of such matters. That was indicated in our consultation and is set out clearly in the explanatory notes. It is unnecessary to require in legislation that institutions use their knowledge; that would add nothing to the scheme and have a detrimental impact on the clarity of the definition. That is why our approach has been supported by industry.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I want to return to the Minister’s point about customer-initiated activity. He used the example of a customer asking for a statement of their account. The point at which the statement was requested might indicate whether the customer still knew of the account. If the statement had been requested at the end of year 1 and we were now in year 16, with no customer activity in that intervening period, one would expect that account to be deemed dormant. However, does that activity have to be related specifically to that account? What if a customer has, say, an insurance policy through a bank that is wholly unrelated to the account? I assume that such activity would not impact on the definition of dormancy made by the bank.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

It is up to the bank to judge whether an account is dormant. That is a key point. Banks and building societies will publish their policies on their interpretation of a dormant account. We believe that it is important to have a clear definition in legislation of  dormancy, while allowing banks and building societies the discretion to use their own judgment. In the Bill, it is immediately apparent when the minimum definition of dormancy has been achieved: if there has been a transaction within the past 15 years, the account cannot be considered dormant; if there has not, it can be. The BSA has said that the ability to take account of other forms of customer contact is particularly important to it, and it supports the Bill as introduced. The BBA has also welcomed the ability to take into account other indications whether an account is genuinely dormant.

I do not think that there is any difference between our intentions. We are saying clearly that subsection (3) and the amendment tabled by the hon. Member for Taunton would muddy the waters and make the position less clear. Our professional advice from those in the industry states that they would much prefer to have a clear definition and the flexibility to use their own judgments and publish their own policies, rather than having requirements introduced under the Bill.

Photo of Martyn Jones Martyn Jones Labour, Clwyd South 12:45, 14 October 2008

As my hon. Friend is probably aware, I am concerned about the flexibility for banks and building societies to make their own definitions of dormancy, thereby limiting the amount of money that they may have to give up to the reclaim fund. One of my concerns involves something that he just mentioned. I am interested to hear whether there will be any compulsion on banks and building societies to give their definition of a dormant bank account. If not, there may be a problem of definition.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

There is a requirement on banks and building societies, as part of the banking code, to publish their dormant accounts policies. That is covered. Again, the key point is that it is emphatically the case that banks will want to use their judgment to make reasonable decisions on whether accounts are dormant. We want to create a clear definition of dormancy and then allow banks and building societies to exercise their judgment. Tests such as those in subsection (3), which was inserted in the other place, are not regarded by the BSA or the BBA as helpful. They would fetter the discretion of the institutions to make reasonable judgments on whether accounts were dormant and get in the way of general practice.

I support amendment No. 16 and oppose amendment No. 3. I emphasise that it is not in anybody’s interest to transfer accounts unless people have lost touch and the accounts are considered dormant. If they are not dormant, there is at least an administrative cost involved. I also emphasise that this is customers’ money. If a customer goes through the door of a bank or building society and says that he or she wants their money, they will be able to get it, subject to the necessary checks. If the money has been transferred as dormant, it will be reclaimed by the bank from the reclaim fund, and as far as the customer is concerned, they will just be withdrawing their money from their bank account, as they have a right to.

Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am not massively reassured by the Minister’s statement that the associations representing banks and building societies are not keen for more onerous requirements to be put on them; I had expected  that. Nevertheless, I take his point, which is that it is difficult specifically to define a more onerous requirement. When I moved the amendment, that point was reasonably put to me in an intervention by the hon. Member for Fareham.

As the Minister said, all parties seem to share the overall objective of trying to make the requirement as strong as possible, but given that it is difficult to frame it legislatively, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment No. 47, in clause 11, page 6, line 38, leave out

‘at any time during that period’.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to discuss amendment No. 46, in clause 11, page 7, line 3, at end insert—

‘(2A) Where under the terms of the account withdrawals were prevented or there was a penalty or other disincentive for making withdrawals, the period of dormancy as set out in subsection (1)(a) above will start when withdrawals can be made or when the penalty or other disincentive expires’.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

This is a probing amendment on the wording of subsection (2). I understand that if money is sitting in an account from which withdrawals are not allowed, or if there is a penalty or a disincentive to making withdrawals, the account cannot be deemed to be dormant. The money will sit for ever on the bank’s balance sheet as an asset or a liability. Because the money is unlikely ever to be declared, the bank will decide not to try to reunite it with its owner. However, I realise that many accounts, for short periods, involve a penalty for early withdrawal, including loss of interest. Even if those penalties were effective for only a short time, those accounts would never be deemed to be dormant.

I looked on the internet to find some examples. I found the Alliance & Leicester eSaver issue 2 account, in which interest is foregone in any month in which a withdrawal is made. That account would therefore fall foul of subsection (2)(b)(ii), which states that

“there was a penalty or other disincentive for making withdrawals”.

On that basis, such an account could never be said to be dormant.

Another was a fixed-rate bond account—not at Alliance & Leicester—that paid a high interest rate but with no access for at least a year. That would fall foul of subsection (2)(b)(i), which states that “withdrawals are prevented”. I am not sure whether that is the intention of the provision, but it is certainly the impression that it left in my mind. That is why I tabled amendments Nos. 47 and 46, which suggest that the period of dormancy should be calculated from the time when the penalty expires. For the Alliance & Leicester eSaver account, the period of dormancy would start after a year, so rather than it being declared after 15 years, it would be 16 years after the account was opened.

I would be grateful for some clarity on the thought processes behind subsection (2).

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

I shall deal first with amendment No. 47, which I appreciate is probing. The amendment would delete the words

“at any time during that period” from subsection (2). We understand that the intention is to clarify the fact that if an account holder has requested no contact, or if the account is a of type that prevents or includes a disincentive for making withdrawals, the period for calculating dormancy can begin only once the restrictions are lifted. We believe that the clause already achieves that, and that omitting those words is unnecessary and makes the point less certain. The amendment would remove the emphasis that if at any time an account becomes subject to those restrictions, it cannot be considered dormant.

Amendment No. 46 is designed to clarify the fact that a period of dormancy cannot include any time during which any penalties or disincentives for withdrawals apply. The hon. Member for Fareham gave several examples. Although we agree with the intention, clause 11(2) already achieves that effect. In the case of an account with fixed-term or no-mail restrictions, the clause ensures that the 15-year period of inactivity required to meet the dormancy definition cannot begin until those restrictions have ended. These proposals are not necessary, as they would not achieve anything that the Bill does not already ensure. I therefore invite the hon. Gentleman to withdraw the amendment.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I am grateful to the Minister for that clarification. He has set out why my amendments are unnecessary, and I think that the clause is meant to achieve what my amendments are designed to do. The only thing that slightly sticks in my own mind is the phrase “if at any time”, because there may be a one-year period when withdrawals are prevented, but the fact that there is a one-year period means that the account cannot be declared dormant.

An account may have been open for 15 years, but if at any time there was a period when withdrawals were prevented, that account could not be made dormant. I think that that is how the phrase “if at any time” works in the context of the clause.

I think that the Minister and I are on the same wavelength with what we want to achieve, but I am not sure that the drafting of the clause quite gets there yet. I will be happy to withdraw amendment No. 47 and not press amendment No. 46, but I hope that he will look again at the wording of the clause to ensure that it does not inadvertently rule out a swathe of accounts from being dormant. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

I beg to move amendment No. 15, in clause 11, page 7, line 3, at end insert ‘in all circumstances’.

It is clear that when defining dormancy as a period without customer-initiated activity, we should not include accounts where no activity on the account is an integral feature of it. In the case of fixed-term accounts, whereby the money is locked in for a period of years when no transactions are permitted without significant penalties, the 15-year clock should start ticking only when those conditions expire at the end of the term.

The clause covers all accounts. In the case of a fixed-term account, it ensures that the 15-year period of inactivity required to meet the dormancy definition cannot begin until the fixed-term restrictions have ended. However, in respect of certain types of account that could be considered to fall under this exclusion, such as those where a short notice period is required before a withdrawal can be made, it has been argued that the position is not totally clear. The hon. Member for Fareham was getting at that point a moment ago.

We want to make it clear that such notice accounts are eligible for inclusion in the scheme. For those accounts, a period of 15 years without customer-initiated activity will still be a good indicator of dormancy, subject to the other conditions that the banks and building societies have committed to taking into account through the banking code. Our amendment clarifies the position to ensure that only accounts where a genuine penalty or disincentive is applied to any withdrawal are to be  prevented from being considered for dormant status. We hope that this technical amendment clarifies the situation.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The amendment might well address the issue that I was probing earlier, but I am not entirely clear that it does that. Although I welcome the amendment, it does not entirely remove the objections that I referred to. Although the Minister has clarified what the amendment is designed to do, and I think that we are working towards the same end, I am still not sure that the wording “if at any time” is entirely neutralised by the addition of “in all circumstances”.

Amendment agreed to.

Amendment made: No. 16, in clause 11, page 7, line 4, leave out subsection (3).—[Ian Pearson.]

Further consideration adjourned.—[Mr. Blizzard.]

Adjourned accordingly at one minute to One o’clock till Wednesday 15 October at half-past Two o’clock.