Irish Competition Authority Decisions

1. Arrangements for the regulation of cheque guarantee cards involving the four associated banks, the ACC, the TSB, and Irish Permanent plc collectively known as The Cheque Card Committee (The Committee) were notified to the Competition Authority on 25 September, 1992. The notification requested a certificate under Section 4(4), or in the event of a refusal by the Authority to grant a certificate, a licence under Section 4(2) of the Competition Act, 1991. Notice of intention to take a favourable decision was published in the Irish Times on 8 September 1995. No submissions were received from third parties.

2. The notification concerns the Rules and Regulations of the Committee in respect of cheque guarantee cards. The parties to the agreement each provide cheque guarantee cards to their personal customers. Such cards guarantee payment by the issuing institution of cheques written by cardholders provided certain regulations are adhered to by the entity accepting the cheque. The Rules and Regulations are agreed between the parties.

3. The parties to the agreements are Allied Irish Banks plc, The Governor and Company of the Bank of Ireland, National Irish Bank Ltd., Ulster Bank Ltd., ACC Bank, TSB Bank and Irish Permanent plc. The first four are known as the associated banks. They are essentially clearing banks which provide a broad range of retail and wholesale banking services and were traditionally responsible for the money transmission system. The name derives from a provision of the 1942 Central Bank Act and is a carry over from the banks' status as shareholders in the Currency Commission, the forerunner of the Central Bank. A series of mergers during the 1960s reduced the number of associated banks from eight to four. Two of these, AIB and the Bank of Ireland, are Irish owned institutions. Ulster Bank is a subsidiary of the UK National Westminster Bank group and National Irish Bank is a subsidiary of the National Australia Bank group. The Ulster Bank and National Irish Bank are much smaller in terms of size than Bank of Ireland and AIB. ACC Bank is a State owned financial institution originally established to provide credit in order to provide finance to the agricultural sector. In recent years it has begun to engage in the provision of a wider range of general banking services. TSB bank emerged as a result of a series of amalgamations of the various trustee savings banks which had been located throughout the State. Irish Permanent plc is Ireland's largest building society. In 1994 Irish Permanent was converted from a mutual building society to a public limited company.

4. The agreement is in respect of the rules and regulations for cheque guarantee cards. Such cards are issued by the institutions to their personal current account holders. Such cards guarantee payment by the institution concerned of cheques written by such customers, up to a certain limit, provided certain conditions are met. In effect the arrangements provide a cheque guarantee service to payees who are primarily businesses, in respect of cheques from private individual account holders. By facilitating the acceptance of personal cheques by business, cheque guarantee cards provide consumers with a convenient means of paying for their purchases of various goods and services. The alternatives to making payment by cheque supported by a guarantee card are payment by non-guaranteed cheque, cash and credit or charge cards.

5. Cheque guarantee cards provide greater convenience and security than cash for consumer transactions above very small amounts. Credit and charge cards, however, would appear to offer similar attractions to cheques as a means of payment. Details on the number of cheque cards issued are given below. These show that there were 680,000 cheque guarantee cards in circulation in 1994. Central Bank figures indicate that in 1992 151m cheques were issued with a total value of £264bn. In practice a large portion of the cheques issued in any one year would be corporate cheques and would not arise as a result of the arrangements. Information on the number and value of personal cheques issued using cheque guarantee cards is not available.

Source: Irish Bankers' Federation.

6. According to the parties any institution which offers a cheque (current account) service may operate its own cheque guarantee arrangement, although they state that none has done so. The parties believe that at the time of the application all institutions within the State who provide current account services on a commercial basis for personal customers were members of the scheme.

7. The arrangements involve the rules and regulations applying to the cheque card guarantee scheme which are agreed by the members of the Committee. The scheme operates only within the State and guarantees personal cheques provided that the party accepting the cheque observes certain standard conditions set out in the rules and regulations. The scheme only applies to personal cheques. Alternative mechanisms exist for making corporate payments that are guaranteed.

8. The cheque guarantee may appear in two forms. These are (i) the Standard Cheque Guarantee Card and (ii) where the Cheque Guarantee Logo appears on another payment card. Specifications for both card types are set out. Members undertake to abide by the rules of the Committee. Rule 1.2.4 provides that standard guarantee cards may only be manufactured by companies authorised to do so by the Committee for security reasons. Rule 1.2.6 describes the conditions attaching to the use of the card. They set a limit on the amount of the guarantee along with certain other requirements. Rule 1.2.7 provides that a reward of £100 will be paid for the recovery of a lost or stolen card which is being used fraudulently.

9. Rule 2 provides for the apportionment of costs between the members of the scheme. Rule 3 provides for the composition of the Committee. Rule 4 provides that membership of the scheme is open to all credit institutions licensed and regulated by the Central Bank of Ireland, which are authorised by it to provide money transmission services. New members are expected to achieve a minimum of 5,000 cards within a reasonable time. New members must pay 5% of past development costs along with the costs to the system associated with a new member joining.

10. In support of its request for a certificate the Committee stated that membership was voluntary and that institutions could establish their own independent arrangement for guaranteeing cheques. They stated that the object of the arrangement was to cooperate on the development of the scheme to maximise the security and reliability of the cheque guarantee service and simplify procedures for users. They also stated that the arrangements did not intrude upon the competitive elements of how members provided the service to customers. The Committee also presented a number of arguments in support of their request for a licence but these are not considered here.

11. Section 4(1) of the Competition Act states that ´all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void.'

12. Section 3(1) of the Competition Act defines an undertaking as ´a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.' The parties to the present arrangement are the four associated banks, ACC Bank, TSB Bank and Irish Permanent plc. All of them are corporate bodies engaged in the provision of banking services for gain and are therefore undertakings within the meaning of the Act. The agreement on the Rules and Regulations of the Cheque Card Committee is therefore an agreement between undertakings. As the Committee is an association of undertakings the rules also constitute a decision by an association of undertakings.

13. The arrangements constitute an agreement between various banking institutions and Irish Permanent plc regarding the provision of a cheque card guarantee service for personal cheques. Such an arrangement is not anti-competitive per se . While each individual entity could operate its own independent scheme it is more efficient for payees if there is a single scheme with uniform rules. Nevertheless this does not prevent any non-member party from operating its own scheme if it so chooses.

14. The Rules of the scheme as notified do not include any provisions which prevent, restrict or distort competition. Rule 1.2.4 provides that cards may only be manufactured by companies authorised by the Committee. The Authority accepts that this rule is designed for security purposes. There is no indication that any member has been restricted in its choice of manufacturer as a result of its operation. Rule 1.2.6 inter alia sets an upper limit for the cheque guarantee. Again the Authority does not believe that such a provision should be deemed anti-competitive. The use of standard rules, including a common limit for the cheque guarantee, makes it easier for businesses who accept cheque payments guaranteed by such cards, and contributes to the widespread acceptance of the scheme. The financial institutions set their charges for cheques individually. The Rules fix the amount to be paid by way of reward by members in respect of lost or stolen cards. Such a provision cannot, however, be deemed anti-competitive since this is an activity in which all members have a common interest and cannot be considered to be an area where they might be expected to compete with one another.

15. In the Authority's opinion the associated banks, ACC Bank, TSB Bank and Irish Permanent plc are undertakings within the meaning of Section 3(1) of the Competition Act, and the Cheque Card Committee rules constitute an agreement between undertakings. The rules also constitute a decision by an association of undertakings. The Authority believes that the Cheque Card Committee Rules and Regulations, (CA/124/92E), notified on 30 September 1992 under section 7, do not have, as their object or effect, the prevention, restriction or distortion of competition.

16. The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the Rules and Regulations of the Cheque Card Committee, (CA/124/92E), notified on 25 September 1992 under section 7, do not offend against section 4(1) of the Competition Act.

For the Competition Authority

Patrick Massey

Member

2 October 1995.