Warning on credit cheque fees

Consumers could be paying more in interest and penalty charges than they realise when they use credit card cheques, a government minister has warned.

The cheques are sent out by credit card issuers and allow customers to use credit to pay companies and individuals who do not take cards, for example, builders and tradesmen.

But while a payment on a credit card will usually be subject to an interest-free period, money spent on a credit card cheque will be treated as a cash advance and will attract interest straight away.

And purchases made with a credit card cheque do not come under the same guarantees as those made with a card payment.

The consumer affairs minister, Gerry Sutcliffe, said the government was committed to improving the consumer credit market so that people get better information about their choices.

"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 choose," he said.

"This is particularly important when it comes to using credit card cheques. People may not always understand how much they will pay back when they write a cheque."

The Department of Trade and Industry (DTI) has launched a consultation on the cheques, which will investigate how their terms and conditions can be made more transparent.

Proposals include forcing card issuers to print warnings on the actual cheques, and including charging information with the mail out.

However, the DTI's consultation document rules out a ban on the sending out of unsolicited cheques, a practice which has attracted criticism from groups representing consumers. It said this would be "a disproportionate measure at this stage".

The card issuers' trade body Apacs said a ban would be unfair, as providers had committed to checking customers' credit-worthiness before sending out the cheques and people were able to opt out of receiving them.

But the consumer groups Which? and Citizens Advice said the consultation didn't go far enough.

"Which? has long called for a ban on these products which are pushed by credit card companies without any clear advice," said Emma Bandey, the organisation's senior public affairs officer.

"Clear health warnings should be attached to these products and consumers should be able to choose to opt in to receive credit card cheques and not opt out as is the current situation."

Eleven companies issue credit card cheques, including banks HBOS and Lloyds TSB and specialist card providers Capital One and MBNA, but according to Apacs, payments on the cheques accounted for just 0.2% of credit card transactions in 2004.