The Office of Fair Trading has issued a demand for a change in the law restricting the use of credit card cheques. These cheques have been around for about 10 years and are designed to allow people to transfer funds into another of the cardholder's accounts or make payments using their credit card accounts without the use of the card itself. They have however come under fire for a variety of reasons and are widely disliked by both financial watchdogs and the public alike.

Last year, Richard Brown the chief executive of credit card comparison site Moneynet, warned, "We have always advised consumers to avoid credit card cheques like the plague. Many people have no idea that these cheques carry extra charges and do not work like the credit card in their wallet. It's unethical and irresponsible."

Which? has welcomed the comments from the OFT which called credit card cheques a rip-off. Which? is particularly critical of the widespread industry practice of sending out unsolicited credit card cheques in the post whether they are wanted by cardholders or not.

Mike Naylor of Which? said, "We want unsolicited credit card cheques to be banned, especially as we have found that companies use them to encourage indebtedness, for example cheques have been sent out with marketing literature suggesting they can be used to pay for holidays or gifts."

Richard Brown stated, "Many people will be feeling the pinch as all the bills start to roll in, and will be tempted to use these cheques - but they could find it an expensive option," he also added, "At four times the base rate, consumers may want to think twice before using these cheques. And don't forget, users also forfeit the benefit of the lengthy interest free periods available on standard credit card spending."

Financial information site - Motley Fool, pointed out that, "You also don't get the same degree of protection as you do when you use the actual credit card where card providers are equally liable for a breach of contract by the supplier in respect of items worth between £100 and £30,000."

Many users do not know that interest starts to be accrued straight away, according to recent research, and many people are unaware that the interest rate is higher than the standard charges for using their credit card in the conventional manner.

The OFT agrees with Which? in calling for the law to be changed and suggests that the cheques should not be sent out without the card holder's explicit consent.

Action does appear to be starting on this issue however. In November a Department of Trade and Industry discussion paper noted that a "Treasury Select Committee recommended an end to the unsolicited issuing of credit card cheques so that they would not be issued unless the customer specifically requested the cheques."

The Association of Payment Clearing Services (Apacs) who represent the credit card industry told BBC News that the lenders were already in the process of putting their own house in order.

Apacs spokeswoman Sandra Quinn said, "The new banking code requires lenders to be more transparent about charges, the OFT research pre-dates this initiative," and that, "the only area that the industry disagrees with what the OFT says is over its proposal that consumers should have to actively sign an opt-in if they want to receive credit card cheques".

Disclaimer:

All information contained in this article, is for general information purposes only and should not be construed as advice under the Financial Services Act 1986.

You are strongly advised to take appropriate professional and legal advice before entering into any binding contracts.

Useful resources:

Credit card comparisons - Moneynet

( http://www.moneynet.co.uk/credit-card/credit-card.shtml )

Financial information site - Motley Fool

( http://www.fool.co.uk/decisioncentre/creditcards/transfers.aspx )