The High Interest Rates on Credit Card Cheques

Proposed Legislation to Reduce Consumer Credit Debt Levels

Apr 4, 2009

Credit card cheques are a way of paying for goods when a credit card is not acceptable. However, consumers should be aware of the high interest rates that are charged.

Credit card companies send out millions of credit card cheques. In 2008, 280 million says the BBC, although the vast majority are not requested and remain unused. However, for those consumers who do use them the average APR on a cheque is around 27% compared to around 17% for using a credit card. In addition to the high interest rates, cheque transactions also carry a fee, typically around 3%. For most people this simply means an increase in credit card debt.

Section 75 Protection

Worryingly, they also leave consumers who use them without section 75 protection which enables them to claim refunds on faulty or undelivered items costing between £100 and £30,000.

High Interest on Credit Card Cheques

Uswitch.com, the price comparison site, has estimated that lenders earn around £571 million in fees and interest from credit card cheques each year. Although in today’s Credit Crunch economy it’s encouraging that the government is talking about outlawing the credit card cheque, it’s depressing that the practice has been allowed for a number of years. In 2006 the consumer’s magazine Which said: “These cheques offer such poor value” and called for credit card cheques to be banned.

Credit Card Cheque Fraud

In a recent article Times Online highlighted the risk of fraud when banks post consumers an ever-increasing number of credit card cheques.

Increasing Credit Card Borrowing Limits

In 2008 credit card cheque fraud has increased by around 30% from the previous year forcing UK Consumer Affairs Minister Gareth Thomas to call for the cheques to be banned. He also said: “We are concerned that people may be tempted to borrow irresponsibly if credit card companies increase borrowing limits without being requested by customers or (if they) send out unsolicited credit card cheques.”

Personal Debt

Finally, in 2009 Prime Minister Gordon Brown said: “There are two issues that concern us, one is unsolicited credit card cheques, which are an invitation to run up more and more debt… the other is extending credit limits without even telling them… We are going to deal with some of these practices.” Meanwhile, as the UK awaits legislation to finally ban credit card cheques the advice to anybody who receives one is to simply shred it- and to look for a cheaper form of borrowing.

Ali Hussain, Warning over credit card cheque fraudsters, Timesonline March 22, 2009

The copyright of the article The High Interest Rates on Credit Card Cheques in Personal Debt Management is owned by Neil Gunn. Permission to republish The High Interest Rates on Credit Card Cheques in print or online must be granted by the author in writing.