Growing calls to get tough on credit card cheques

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Credit card companies could be forced to make charges on credit card cheques more transparent when a report by the Department of Trade and Industry on their use is published early next month.

Consumer groups have been calling for tougher regulation of high-interest credit card cheques, which can earn their issuers millions of pounds every year, and this is now expected in the next few weeks.

New research from comparison website uSwitch precedes the DTI findings and is adding to pressure to increase regulation. Its study into 2,000 credit card holders, conducted by YouGov, found that one in three people who use credit card cheques are completely unaware that there is a charge for doing so and that almost two-thirds of cardholders do not know what rate of interest they were paying on the amount borrowed by cheque.

Credit card cheques allow consumers to draw money or pay bills from an existing credit card account. But purchases with credit card cheques can attract higher interest rates of up to 5 per cent more than those made by the credit card itself and there is often no interest-free period.

NatWest, for example, charges about 5 per cent more on its credit card cheques than on its credit card borrowing.

Additional fees are also often charged for using a credit card cheque – typically 2 per cent of the value of the transaction.

The uSwitch survey also revealed that millions of cardholders have been sent unsolicited cheques through the post. Nick White, head of personal finance at uSwitch, said: “There is a danger that many of the people who these cheques are targeted at will already be at risk of over-indebtedness and the ‘convenience’ of these cheques, coupled with the manner in which they are marketed, could push them over the edge.”

The uSwitch study also found that barely one-third of those who have used credit card cheques in the last year did so only in an emergency, and only 22 per cent have used them to pay a tradesman who would not accept a credit card payment. Some people who misunderstood the high-interest charges that are triggered when the cheque is cashed said they paid the money into their bank accounts and some even paid off part of their mortgage.

Mike Naylor, principal researcher at Which?, said: “We have long been concerned about the marketing of credit card cheques and we have said so in no uncertain terms in our submission to the DTI.

“Credit card cheques cost more than paying by card and give less protection and as a result are best avoided.”

A spokesman at Barclaycard said that it has a policy of only sending credit card cheques to people that are “not experiencing financial difficulties” and said it has been working on a credit card summary box explaining interest rate charges.

But Naylor does not think this goes far enough. He wants unsolicited credit card cheques to be banned.

“If people have requested cheques in the post it is more likely that they will understand how they work,” he said.

“If people get sent them they should rip them up and tell the credit card company not to send them any more.”

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