Credit card cheques could result in financial hangover
Consumers were bombarded by 313 million unwanted credit card cheques last year, according to uSwitch.
Research by the comparison and switching service has found that, a year on from a Department of Trade and Industry (DTI) investigation into credit card cheques, 96 per cent are still sent out unsolicited by providers. The investigation conclusions stipulated that credit card providers must display a summary box containing the purpose, key features and charges of credit card cheques.
However, uSwitch is still concerned about the unsolicited distribution of cheques, the lack of consumer knowledge of the costs and the checks undertaken by providers as to a customer’s suitability. It found that 22.5 million consumers (50%) have been sent credit card cheques, but just 1 in 50 asked for them. Using them has cost consumers £298 million more in interest and charges than a standard credit card purchase.
In addition, 2.1 million credit card holders think no charges apply to credit card cheques, according to uSwitch, but standard interest rates are actually 76 per cent higher than for normal card purchases and the average handling charge is 2.81 per cent.
Mike Naylor, personal finance expert at uSwitch.com, said: “Unsolicited credit card cheque mailings raise the big question about card providers’ commitment to responsible lending. In 2006, the Office of Fair Trading (OFT) suggested that the practice of issuing unsolicited credit card cheques should be banned, but this was never implemented. In fact, the DTI ruled out the option, and instead imposed an ‘opt-out’ [for consumers].
“No matter how convenient they appear, it is one of the most expensive ways to get your hands on cash – with interest rates on average 76% higher than standard rates. Using a credit card cheque as a quick fix solution could turn into a serious financial hangover.”