The banking industry-dominated Payments Council was widely criticised for its planned abolition of cheques in a report published today (24 August) by the Treasury Select Committee.

The report followed an embarrassing U-turn by the Payments Council, which was forced to scrap plans to abolish cheques last month due to the lack of any viable paper-based alternative.

The report stated: "The decision to announce a target date for the closure of cheque clearing, without providing an explanation of what might replace it, caused deep concern among customers. This was as unnecessary as it was unacceptable.

"The Payments Council communicated poorly with the public, as it acknowledged itself. On occasion the banks gave the impression that the decision to abolish cheques was a foregone conclusion."

MPs welcomed the "belated" withdrawal of those plans but criticised the make-up of the Payments Council and its motivation, while slamming its "poor communication" with customers.

Chairman of the Committee Andrew Tyrie said: "Cheques have been saved, for the moment, but we need to remain vigilant. The incentives for the industry to get rid of cheques has not gone away. Neither have we. That is why we are making far–reaching recommendations about the future of the Payments Council as well as to secure the future of cheques.

"The Payments Council is an industry-dominated body with no effective public accountability. It should not have unfettered power to take decisions on matters, such as the future of cheques, or other issues, that are of vital importance to millions of people."

MPs recommended that provision be made in the forthcoming Financial Services Bill to bring the Payments Council within the system of financial regulation. It also recommended that the composition of the board of the Payments Council be changed in order to "significantly strengthen the voice of consumers".

The report stated: "The Payments Council is dominated by the banks and other payments industry members. Of the independent members of the Board, only one has a consumer background. Consumers are entitled to be suspicious of the motives of a body with such a composition proposing measures that are in the financial interests of its members."

Elsewhere the report called on the Council to obtain a commitment from the banks to give it advance sight of any customer communication material related to the future availability of cheques. It added that all banks should be required to write to their customers stating that cheques will continue to be in use for the foreseeable future.

However, Payments Council acting chief executive Gary Hocking claimed that the decision to retain cheques proved that the body was "well placed to respond to stakeholder needs and will not flinch from taking a difficult decision if it is the right decision".

He added that he did not believe increased regulation was required but said that the Council would take the Treasury Select Committee's recommendations into account when reviewing its governance arrangements – which it is committed to doing before the end of the year.

Following the U-turn on the cheque-scrapping plan, The Payments Council intends to focus on putting plans in place to "continue to process cheques efficiently and securely despite falling numbers".

"We will also look at how we can ensure that customers receive consistent information about payments," said Hocking. "Payments should be driven by customer demand. The decline in use of the Cheque Guarantee Card Scheme was entirely driven by businesses and consumers - guaranteed cheques had fallen by well over 90% from their peak and last year accounted for less than 2% of cheque volumes.

"Its closure was agreed to provide clarity and prevent customer confusion and doesn't stop businesses accepting cheques. We are about to undertake research to assess the impact that the closure of the cheque guarantee scheme will have on cheque usage and businesses, and we will publish the results."