Credit card cheques to be banned

The Government plans to ban unsolicited credit card cheques

Lenders are set to be banned from sending out unsolicited credit card cheques to borrowers, the Government has announced.

It claimed the cheques could draw people further into debt than they intended to go, with the interest charged on the cheques usually far higher than if a credit card had been used to make the same purchase.

Consumers also incur a handling fees for using credit card cheques, often 2% of the value of the transaction, while there is no interest free period and people do not benefit from the same level of protection if things go wrong as if they had used their plastic.

Credit card cheques have come in for heavy criticism from consumer groups and MPs, and there have been calls for lenders to make the cost of using the cheques clearer, as well as for them to be banned altogether.

The Office of Fair Trading called for consumers to be given better information on the cost of the cheques in 2006, saying people could be paying up to £57 million a year extra in interest and charges, compared with if they had used their credit card.

Prime Minister Gordon Brown said the Government would be setting out the proposed framework for a ban in its Consumer White Paper, which is due to be published by Business Secretary Lord Mandelson later this week.

Consumer group Which?, which has long campaigned against the cheques, welcomed the announcement.

A spokesman said: "Credit card companies have been able to get away with these irresponsible practices for fair too long.

"This will send a clear message that there is no going back to the irresponsible lending of the past."