The Department of Trade and Industry (DTI) is preparing to launch a crackdown on lenders who offer credit card cheques to their customers, tightening the regulations surrounding their use, and kick-starting a campaign to raise consumer awareness about their risks.
The move comes in response to persistent lobbying from consumer groups, which believe providers do not give sufficient warning to their customers about the higher charges and often onerous terms and conditions which accompany the use of credit card cheques.
The DTI said this week it is considering a number of options to increase consumer protection, including introducing new rules to force card providers to clearly explain to customers that using a credit card cheque is not the same as simply using their card.
Gerry Sutcliffe, the consumer affairs minister, said: "The Government is committed to improving the consumer credit market so that people get better information about the choices they make. Nearly all of us will need to use credit at some time and I want to make sure that people know and understand the financial implications of the type of credit they use.
"This is particularly important when it comes to credit card cheques. People may not always understand how much they will pay back when they write a cheque. I want people to give us their views on what we can do to make it more clear."
But Which?, the consumer group, said Mr Sutcliffe's proposals did not go far enough. Emma Bandey, a senior public affairs officer at Which?, said: "We are disappointed the DTI has failed to ban unsolicited credit card cheques. The danger with these is that they are usually treated as a cash advance, therefore attracting interest from the day they're used. Clear health warnings should be attached to them."