Banks and credit card companies will no longer be able to send out unsolicited credit card cheques, under new plans laid out in a government White Paper on consumer finances.
uSwitch personal finance manager, Louise Bond welcomed the move, saying "Sending out unsolicited credit card cheques has long since been an act of complete irresponsibility on the part of providers, and finally we have less talk and more action in bringing about an end to this practice."
Credit card cheques have long been controversial - while they may seem like a good way to get your hands on cash in an emergency, or to pay for something when you can't use your credit card, in reality they are far more expensive than using a card and provide less protection if something goes wrong.
Here, uSwitch explains everything you need to know about credit card cheques and why they are being banned.
What are credit card cheques?
Credit card cheques are blank cheques that can be used to pay for things instead of using your credit card. Credit card companies send out millions of credit card cheques each year, and if you have a credit card then you may well have been sent them at one point or another, probably along with your statement.
Why are credit card cheques controversial?
Credit card cheques have come up for criticism for a long time, primarily because many people are not aware that they can be far more expensive than using a credit card. Some 86% of credit card customers who use credit card cheques (1.5 million people) are unsure of what the fees charged on them really are.
Credit card cheques are treated as if you were withdrawing cash on your credit card and you will be charged handling fees of around 2.5 per cent of the value of the cheque - so for example on a cheque of £1,000 a £25 fee would be charged.
In addition, when you pay by credit card cheque, interest is normally charged from the day the cheque was used - unlike credit cards where you will usually have up to 56 days before you start paying interest on your balance. Plus, because of order of payment, you may not be able to pay off this more expensive borrowing until debt charged at cheaper rate of APR is paid off.
In 2008, 280 million credit card cheques were issued, and 3.2 million were used at a total value of £3.6 billion. The average APR on these cheques is 26.71% - almost 10% more than the average purchase APR, so the average cheque worth £1,141 amasses charges and interest costing a shocking £178.56 over the course of 12 months.
Purchases made with a credit card cheque also don't get the same protection as those made with a credit card. Section 75 of the Consumer Credit Act (S.75) makes credit card companies jointly liable with retailers for purchases of more than £100 and less than £30,000 if there is a breach of contract or misrepresentation, for example, if goods are not delivered, or not as they were described.
What are the alternatives to credit card cheques?
If you need to pay for something in cash and you don't have the necessary funds available in your current account you could try a card that offers a good deal on money transfers, like the MBNA Platinum Plus. With the card you get 0% on money transfers to your current account for 13 months (a 4% handling fee applies) if you make the transfer within the first 90 days of opening your account. This could be a much better deal than a credit card cheque and gives you a generous period to pay off whatever you borrowed. The interest rate on money transfers after the 13 month interest free period is up is 19.9% APR and the standard rate on the card is 15.9% APR typical variable. Apply now.
Find a new credit card with uSwitch now
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