Credit Card Cheques Branded A "Rip-Off" By
Financial Protection Agencies.
Author: R.Green

The Office of Fair Trading has issued a demand for a change in
the law restricting the use of credit card cheques. These
cheques have been around for about 10 years and are designed to
allow people to transfer funds into another of the cardholder's
accounts or make payments using their credit card accounts
without the use of the card itself. They have however come
under fire for a variety of reasons and are widely disliked by
both financial watchdogs and the public alike.

Last year, Richard Brown the chief executive of credit card
comparison site Moneynet, warned, "We have always advised
consumers to avoid credit card cheques like the plague. Many
people have no idea that these cheques carry extra charges and
do not work like the credit card in their wallet. It's
unethical and irresponsible."

Which? has welcomed the comments from the OFT which called
credit card cheques a rip-off. Which? is particularly critical
of the widespread industry practice of sending out unsolicited
credit card cheques in the post whether they are wanted by
cardholders or not.

Mike Naylor of Which? said, "We want unsolicited credit card
cheques to be banned, especially as we have found that
companies use them to encourage indebtedness, for example
cheques have been sent out with marketing literature suggesting
they can be used to pay for holidays or gifts."

Richard Brown stated, "Many people will be feeling the pinch as
all the bills start to roll in, and will be tempted to use these
cheques - but they could find it an expensive option," he also
added, "At four times the base rate, consumers may want to
think twice before using these cheques. And don't forget, users
also forfeit the benefit of the lengthy interest free periods
available on standard credit card spending."

Financial information site - Motley Fool, pointed out that,
"You also don't get the same degree of protection as you do
when you use the actual credit card where card providers are
equally liable for a breach of contract by the supplier in
respect of items worth between £100 and £30,000."

Many users do not know that interest starts to be accrued
straight away, according to recent research, and many people
are unaware that the interest rate is higher than the standard
charges for using their credit card in the conventional manner.


The OFT agrees with Which? in calling for the law to be changed
and suggests that the cheques should not be sent out without the
card holder's explicit consent.

Action does appear to be starting on this issue however. In
November a Department of Trade and Industry discussion paper
noted that a "Treasury Select Committee recommended an end to
the unsolicited issuing of credit card cheques so that they
would not be issued unless the customer specifically requested
the cheques."

The Association of Payment Clearing Services (Apacs) who
represent the credit card industry told BBC News that the
lenders were already in the process of putting their own house
in order.

Apacs spokeswoman Sandra Quinn said, "The new banking code
requires lenders to be more transparent about charges, the OFT
research pre-dates this initiative," and that, "the only area
that the industry disagrees with what the OFT says is over its
proposal that consumers should have to actively sign an opt-in
if they want to receive credit card cheques".


Disclaimer:

All information contained in this article, is for general
information purposes only and should not be construed as advice
under the Financial Services Act 1986.

You are strongly advised to take appropriate professional and
legal advice before entering into any binding contracts.

Useful resources:

Credit card comparisons - Moneynet (
http://www.moneynet.co.uk/credit-card/credit-card.shtml )
Financial information site - Motley Fool (
http://www.fool.co.uk/decisioncentre/creditcards/transfers.aspx
)


About The Author: Richard lives in Edinburgh, occasionally
writing for the personal finance blog Cashzilla (
http://cashzilla.blogspot.com/ ), and talks to himself a lot.