MP calls for cheque loophole closure

CONSUMERS are being exposed to fraud by a legal loophole that allows financial middlemen to cash customers' cheques that are made payable to banks and building societies.

Financial advisers are able to pay the cheques, destined for products such as Isas or bonds, into their own accounts in what is an 'acceptable and widespread practice' in the banking industry.

Conservative MP for South Norfolk Richard Bacon is lobbying the Government and the banking industry to have the loophole closed.

The glaring hole in security procedure was highlighted by the case of financial adviser Michael Hart, who was jailed for six years for stealing £1.8m from clients.

Hart paid in hundreds of his clients' cheques made out to Abbey, the Norwich and Peterborough, and Leeds and Holbeck building societies into his own personal account.

Abbey said the procedure was an 'acceptable and widespread industry practice' but has since stopped accepting the cheques.

Several of Bacon's constituents lost money as part of the scam. Martin Helm, 56, a public relations consultant who lives in central London and was swindled out of £28,000 by Hart said Abbey's failure to prevent the fraud was 'scandalous'.

He said: 'This was so simple as to be unbelievable. I gave Michael Hart a cheque to buy an Isa made payable to Abbey National because they were supplying the Isa.

'He took it to an Abbey National branch and paid it into his own personal account and was allowed to do so by Abbey National.'

He said it was outrageous for Abbey not to accept responsibility for the practice and claimed 'ordinary people' are unaware of the lack of regulation.

Bacon said: 'Why isn't the Financial Services Authority or the Government taking action over this abuse? Everyone understands that if you make a cheque out to somebody, only that person should be able to cash it. Everyone apart from the banking industry that is.'