Beware of postmen who deliver blank cheques

Those convenient bits of paper sent by your credit card provider have a sting in the tail, writes Sam Dunn

he cheque may not be in the post. Unsolicited blank credit card cheques sent by lenders to their own card customers face an uncertain future after the Government backed a move to end the practice last week.

he cheque may not be in the post. Unsolicited blank credit card cheques sent by lenders to their own card customers face an uncertain future after the Government backed a move to end the practice last week.

As the Consumer Credit Bill went through Parliament, consumer minister Gerry Sutcliffe said existing legislation would be used to bring about changes. This followed the withdrawal of an amendment to the Bill, tabled by Labour MP James Plaskitt, a member of the Treasury Select Committee, that would have outlawed the practice.

"We are going to get there," says Mr Plaskitt. "These [cheques] are a scourge - the worst way of using up your credit limit." Rather than being sent cheques out of the blue, he adds, people should only be given access to this type of lending on request. From March, separate proposed changes to the voluntary Banking Code will require all lenders to offer customers an opt-out from receiving these cheques. But the reformers should expect a dogged response from the banking industry because, with their fees and high charges, the cheques are money-spinners.

Sent out by nearly half of all lenders, including such high-street banks as Lloyds TSB and the Halifax, they let you buy goods and services like normal cheques when you can't use your card - when paying a self-employed decorator, say.

You can also pay them into your bank current account as a cash deposit, and the sum then pops up on your card statement.

This might sound convenient but the cheques have vociferous critics. "There is no consumer benefit to them at all," argues Mike Naylor of consumer body Which?. "They cost more than using your credit card, have no [consumer] protection and carry high charges."

The annual percentage rate (APR) on credit cheques is usually set at a much higher rate - at least five percentage points in many cases - than on the same lender's credit card, according to research from moneysupermarket.com, the price-comparison website.

Worse, this higher APR is charged from day one of your purchase - there's no 56-day interest-free period akin to that on a credit card. So, even if you clear the bill in full two weeks later, you'll still be charged for the time it was left unpaid.

There may also be a fee to pay just for using the cheque, usually about 2 per cent of the value of the transaction.

Nor do you get the same protection (under the Consumer Credit Act 1974) as you would when paying for goods on a credit card. If you buy anything with a credit cheque that proves faulty or isn't delivered, the lender won't refund you or pursue the store for compensation.

The Halifax's One Visa card has an APR of 9.9, but if you use the card cheque sent to you, the standard APR is more than double at 21.9. While the Halifax won't charge a fee for using the cheque, interest clocks up immediately.

However, an MBNA Platinum Plus Visa customer using a credit cheque would pay less than the current APR of 15.9 on the card itself, says spokesman Paul Lawler. For new customers, the cheques are on offer at 0 per cent for nine months, he adds, although there is still the 2 per cent fee to pay.

"These cheques let people have another way to access their credit limit. Customers don't have to use them; they can tear them up."

The banks also claim that they don't target everyone and that cheques are not sent to cardholders who are close to their credit limit.

A Which? report earlier this month found that you were more likely to receive a cheque if you owed a greater amount on your card.

The research into the credit card market tore into the cheques, and in particular the marketing that encourages card holders to spend. Almost half of Which? members - people who subscribe to its magazines - said they had been sent these cheques without asking for them.

Security is also an issue since many cardholders won't know they have been sent the cheques. If stolen, customers are in danger of seeing fraudulent transactions stacked up on their card statements as the cheques are paid into another account.