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Dormant Bank and Building Society Accounts Bill [HL]

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 1. I shall also speak to the other amendments in this group. I begin by setting out what it means for an account to be dormant and exactly what the definition must achieve. It is vital that the definition is completely clear so that no institution can be in any doubt when it transfers an account to the scheme about whether the account qualifies as dormant. The definition must be able to be applied simply and effectively by over 200 institutions, each with a wide range of accounts with differing features, customer bases and usage profiles. At the same time, we are committed to doing the utmost to ensure that only truly dormant accounts are transferred into the scheme. However, the available information which could be used to identify whether an account is active varies enormously between institutions, and even between different accounts in the same institution. We are confident that with the refinements in the definition produced by the Bill’s passage through both Houses, we now have a definition that is both clear enough to provide a simple and effective test and flexible enough to allow the institutions to take into account the information available to them The key condition of no customer-initiated transactions in relation to the account for 15 years is both simple and universally applicable. Yet there is flexibility for an institution to refer to any consumer activity of which it has knowledge in deciding whether an account is genuinely dormant. That could include, for example, correspondence, telephone calls, emails or voting at AGMs. Under the Banking Code, each institution is required to publish clearly, for all their customers to see, the criteria it will use to decide the issue of account dormancy. With that in mind, I turn specifically to the amendments before us. The Government’s intention is that all bank and building society accounts based on the definition of dormancy in the Bill are eligible for transfer into the scheme. Naturally, this includes accounts that could have been opened a very long time ago. When we first debated the Bill in this House, we were asked to clarify the position for accounts owned by deceased persons. It is of course unlikely that banks and building societies will know whether account holders are living or deceased. Unless they have very good reason not to, we would expect them to transfer into the scheme all accounts that fit within the 15-year qualification period. However, we understand that institutions wish to have certainty on this point so that they are not constrained in their ability to participate in the scheme. We have therefore introduced this amendment, which is a technical clarification confirming that accounts owned by deceased persons are indeed eligible for transfer into the scheme. Amendment No. 8 also is a technical amendment. It ensures that notice accounts, where a short notice period is required before a withdrawal can be made, are not excluded from the scheme under the provision that was made for fixed-term accounts. Amendment No. 9 covers our intention to ensure that genuinely dormant bank and building society accounts lost by the account holder will be transferred into the scheme, and not those accounts which are simply rarely used but of which the account holder is still aware. This will minimise unnecessary costs associated with returning accounts to customers after transfer. We want, of course, to keep the necessity for any return transfer to an absolute minimum. Our scheme provides a definition of dormancy that is simple, clear and straightforward. It is an account open throughout a period of 15 years with no customer-initiated transactions. However, the scheme is also sophisticated. It allows banks and building societies the flexibility to refer to customer-initiated activities which may indicate that an account is not in fact dormant even where there have been no transactions on it. Of course in those circumstances the account would not fall within the framework of the scheme. If the institution is aware of activity—the request of periodic statements, for example—we would fully expect institutions not to transfer such accounts. Furthermore, those with particularly strong or individualised systems will be able take this into account in their individual policies. This flexibility is one of the great strengths of our scheme. Institutions will be expected to use their knowledge. That was indicated in our consultation and is clearly set out in the Explanatory Notes. The Building Societies Association has said that the ability to take account of other forms of customer contact is ““particularly important”” to it, and that it supports the Bill as it is. The British Bankers’ Association has also welcomed, "““The ability to take into account other indications of whether an account is genuinely dormant””." Furthermore, it is simply not in the interests of any institution to transfer an account to the scheme unless the deposit-taker and the customer have genuinely lost touch. This would add to the administration of the scheme, a substantial proportion of which will be borne by those institutions themselves. Requiring institutions to use all their knowledge in legislation is unnecessary, as it adds nothing to the scheme. On the contrary, it would have a detrimental impact on the clarity of the definition. It is immediately apparent in the Bill when the minimum definition of dormancy has been achieved. If there has been a transaction in the last 15 years, the account cannot be considered dormant. If there has not been a transaction in that time, it can be considered so. Most importantly, however, the consumer will have a full right to repayment in all circumstances through the bank or building society where they held the account, whether or not it is transferred under the scheme. The consumer experience will not even differ. The process of recovering their account will be the same to them. All they will have to do once they identify that they have an account with the institution is to present suitable proof of identity and of account ownership. Once their identity has been established, the bank or building society will reinstate their account or pay them the balance. The only difference if the new account has been transferred under the scheme will be that the bank or building society will subsequently recover the balance from the reclaim fund. We therefore oppose any change to the definition of ““dormancy”” in the original draft of the Bill. As regards Amendments Nos. 10, 10A and 10B and the period of 15 years, we recognise that there is considerable debate over the suitable length of the period for the purpose of defining dormant accounts. We believe that 15 years’ customer inactivity is the most appropriate time to determine whether an account is truly dormant. That figure was arrived at after considerable discussion with industry and consultation. It is also the figure that other countries, including Ireland, have adopted in legislation. Industry has estimated that 80 per cent of accounts that have had no customer initiated activity for 15 years are truly dormant. Adopting a lower dormancy period runs the risk of a higher reclaim rate, with a corresponding inevitable increase in costs. In any case, any accounts which are truly dormant will still be dormant when they reach the 15-year mark, and will come into the scheme then. However, we have listened carefully to the arguments for a shorter period, which have been put on a number of occasions. We accept that, in the future, the experience of the operation of the scheme and of industry could suggest that there should be an alternative figure to that in the Bill. Accordingly, the Commons amendment brings forward a reserve power for the Treasury to amend the dormancy period. The amendment was drafted with a negative resolution procedure. However, the Delegated Powers and Regulatory Reform Committee considered this power and recommended that, since the definition of a ““dormant account”” is central to the purpose of the Bill, the power to amend the 15-year period should be subject to the affirmative procedure. We have, of course, respected its conclusions and representations and are happy to bring forward Amendment No. 10B for inclusion in the Bill. Accordingly, I will move that amendment when we get to it. I beg to move. Moved, That the House do agree with the Commons in their Amendment No. 1.—(Lord Davies of Oldham.)