Simon Read: Why wait to write off credit card cheques?

A government crackdown on unsolicited credit card cheques has long been overdue. The cheques have seemingly indiscriminately been junk-mailed to millions of credit card holders in recent years simply to encourage them to overspend and boost banks’ profits. According to figures from uSwitch, 280 million of the cheques were sent out to 14 million people last year alone. And the 3.2 million of those suckered into using the cheques helped the credit card companies pocket an extra £571m in handling fees and interest charges last year.

“Credit card cheques have wreaked havoc with the finances of unsuspecting credit card customers for years,” says Andrew Hagger of moneynet.co.uk. He points out that a £500 cheque can easily spiral by an additional £150 in just a year with fees of around 3 per cent and interest charged at up to 28 per cent. “Sending these cheques to people with little financial discipline or willpower is akin to posting candy through a school letterbox,” he says.

The problem with the cheques is that they can seem a convenient way to pay for some things, such as an outstanding debt elsewhere, but the interest is usually much higher than normal and is charged from day one as a cash withdrawal, rather than borrowers being given a few weeks’ interest-free period as they are with purchases. The unsolicited cheques therefore simply become a temptation to struggling people who can ill afford to take on extra debt, particularly at the more punitive rates.

So the news that the Government is banning lenders from sending out the cheques unless a customer asks for them should be a reason to cheer. Indeed, when launching a White Paper on Thursday setting out the crackdown and several other changes to help people with credit problems, Consumer Minister Kevin Brennan, pictured, promised: “There will be tougher action against rogue traders and fraudsters who look for ways to fleece consumers |out of their hard-earned cash.”

But his drum-banging didn’t extend to immediate action. The ban is unlikely to come into force for some time with legislation not planned until the autumn, which means millions more could be tempted into unmanageable debt in the meantime. Let’s face it, giving someone deep in debt a blank cheque to write is like giving a drowning man a bucket of water. The Government has already taken too long to deal with the issue and there is no reason for any further delay. This pernicious practice should be outlawed at once.

Also included in the White Paper is a proposal for a Consumer Advocate, who will be “responsible for co-ordinating work to educate consumers and to help them get their money back when things go wrong”. The Advocate won’t be appointed until next spring and, even then, looks set to be fairly toothless with no real legal powers. There are more details to come about how the Advocate will be allowed to operate so I will reserve judgement. However, the opportunity is there to make a difference – I just hope that the Government is brave enough to grasp it this time.