A new report from uSwitch indicates that a 2006 Department of Trade and Industry investigation into the sending out of unsolicited credit card cheques has failed to clear up all the issues surrounding the practice, which it considers unethical.
The comparison and switching company is concerned that companies are still sending out credit card cheques without requests from customers, who often do not understand the related costs. Furthermore, uSwitch is concerned that companies are not carrying out sufficient checks when assessing the customer’s ability to repay.
Personal finance expert at uSwitch.com, Mike Naylor, says: “We would like to see the regulatory bodies pull together to stop unsolicited mailings and allow consumers to make their own minds up as to whether they want to receive credit card cheques or not.”
Its research reveals that 96 per cent of credit card cheques sent out are unsolicited, with 313 million of the 326 million cheques issued last year sent without any request from the customer. Approximately 22.5 million consumers (50 per cent) have been sent the cheques although only one in 50 asked for them. One in three people receive credit card cheques at least twice a year and, while in June 2006, 25 per cent of people were oblivious to their high interest rates and charges, this has now almost doubled to 44 per cent.
These findings are particularly worrying as the average interest rate on a credit card is 15.7 per cent APR compared with 21.7 per cent pa (equivalent to 27.6 per cent APR) on a credit card cheque. Moreover, 2.1 million credit card holders are unaware that any charges apply to credit card cheques.
In response, uSwitch.com is calling for a ban on these unsolicited cheques and more prominent, tobacco-style warnings on cheques that have been requested. However, with 4.1 million people spending £4 billion on the cheques, providers are unlikely to give up the £660 million a year income without a fight.
“It is easy to see how credit card cheques can appear a very attractive option for borrowers who are desperately in need of money, but no matter how convenient they appear, it is one of the most expensive ways to get your hands on cash - with interest rates on average 76 per cent higher than standard rates. Using a credit card cheque as a quick fix solution could turn into a serious financial hangover,” said Mr Naylor.
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