Why Credit Card Cheques Are Bad For Consumers

The types of cheques I usually associate with credit card companies are those where they are blank, and the card providers send out a small amount, say about five. Those cheques can be written out up to a certain value, say £3,000, the specific amount much depending on the credit worthiness of the customer.

The idea is that they can be used to pay, say, for a repair on the home, where the workman doesn’t accept card payments. Or, you can even write a cheque out to yourself, deposit it in your bank, and the money is sent from the issuing company to your bank account.

Sounds great! £3,000 available to deposit to boost your funds. That’s when it hits you, because that money is just a loan by another name, and the interest rate is higher than normal, starts from day one, and is treated by the card company in a similar way to you withdrawing cash, so no interest-free period. In addition there can be a handling charge of 2.5% or 3% of the transaction amount. On £1,000 that equates to £25 or £30.

Apart from the costs involved in using this form of payment there are other downsides.

These include:-

* No enhanced warranties and consumer protection provided by the company under the terms of the Consumer Credit Act 1974.

* You cannot stop a credit card cheque

* Cheques cannot be guaranteed

The UK government has banned the unsolicited sending out of credit card cheques, but only if the customer tells their card provider they wish to opt out. I think it would be better to only allow these cheques to be sent if customers request them first.

So, very few advantages, and a lot of negatives in using credit card cheques. The advice I have frequently read about these cheques is not to use them, ever, and if you do get any you didn’t ask for, destroy them, preferably by shredding.

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