THE practice of banks profiting by delaying money transfers and the clearing of cheques is to be curbed in an official crackdown to be announced later this month.

There is a gap of three to five days between a customer’s account being debited and the recipient being credited — despite modern technology that would allow the money to be transferred instantly.

During the clearing period, banks are able to lend out the money — and have been making tens of millions of pounds a year from the practice.

But soon, under a deal between the Office of Fair Trading (OFT) and the banks, money leaving a customer’s account should reach its destination the same day.

A source close to the OFT said: “An agreement has been reached and the implementation process is already under way. This will be announced in the last week of May . . . this is an important issue which needed to be sorted out.”

Although the change is initially voluntary, Labour’s election manifesto said the government would “if necessary legislate to ensure this early in the next parliament” if banks failed to cut the delays themselves.

Systems dealing with direct debits, standing orders and other electronic payments will be the first to be speeded up, with cheque-clearing expected to follow soon afterwards.

Clearing by British banks has been criticised as among the slowest in the world and has been widely criticised by consumer groups and even the Bank of England.

In the past, banks have claimed that speeding up the system would require massive investment and prove technologically difficult. A Treasury source said: “I’m sure if we can put men into space that banks can work out how to set up a computer system to clear cheques straight away.”

The slowness was first exposed by Don Cruickshank in his Treasury-commissioned review of the banking industry five years ago. Since then banks have continued to make record profits and have been criticised by a parliamentary committee for routinely offering consumers a poor deal.

Explore UK News

• Crime News

• Education News

• Health News

• Science News

• Scotland News

Times Recommends

• Donor organ allowed child’s own heart to heal
• Michael Jackson: Not the final chapter
• Sacha Baron Cohen forced to tone down Brüno