New laws needed to protect users of credit card cheques

01/03/06

A new report from the Office of Fair Trading has called for the introduction of new legislation to protect consumers from high rates of interest and hidden charges when using credit card cheques.

The cheques are often sent out unsolicited by card companies and enable consumers to pay for purchases with their credit card accounts without having to use their plastic card.

However the Office of Fair Trading (OFT) has suggested that many people are unaware that the interest rate charged is higher on credit card cheques than for normal purchases made with the card. Furthermore the OFT believes consumers may not be aware there is often no interest free period as interest is charged as soon as the cheque is processed and extra fees are often charged for using a credit card cheque, typically 2% of the value of the transaction.

The OFT wants the government to introduce legislation to ensure that consumers are provided with clear information about the cheques and the cost of using them. The OFT would like the consumer to be given information regarding:

how using one the cheques differed from the use of a credit card, for example when such cheques are treated as cash advances rather than purchases
what the interest rate is and if this differs from the rate for card purchases
whether there is an interest-free period
whether there are additional charges and how much these are
whether purchases made using a cheque get the same protection as those made with a card.

John Fingleton, OFT Chief Executive, remarked: "Consumers need good quality information about the costs and other potential disadvantages of credit card cheques before they consider using them This isn't always happening and we urge the government to introduce legislation to protect consumers"

The OFT's report was welcomed by consumer organisation Which? Mike Naylor from Which?, said: "We have long been concerned about the marketing of credit card cheques and we have said so in no uncertain terms. He said that "cheques are sent to cardholders whether they want them or not. 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."

Sandra Quinn from APACS responded on behalf of the banks and financial institutions by saying "the new banking code requires lenders to be more transparent about charges, the OFT research pre-dates this initiative." APACS is the UK trade association for payments and for those institutions that deliver payment services to customers.