Credit card cheques to be banned
Updated on 02 July 2009
Lenders are to be banned from sending out unsolicited credit card cheques to borrowers in a move to prevent consumers from falling further into debt.
The move is outlined in its Consumer White Paper, which contains a range of measures designed to promote responsible lending and strengthen the rights of consumers.
The government has been critical of credit card cheques, warning earlier this week that they could draw people further into debt than they intended to go.
Credit card cheques can be used like personal cheques, with the value of the transaction added to the borrower's card balance. But the interest charged is usually far higher than if a credit card had been used to make the same purchase.
Consumer Affairs Minister Kevin Brennan also outlined a consultation on plans to reform the regulation of credit and store cards.
Among the measures being considered is a ban on the practice of raising consumers' individual credit limits without prior consent.
A survey by the comparison website uSwitch.com today suggests that one in five people have had their credit card limit increased without their permission in the past year, with the average person seeing their credit limit rise by just over £1,500.
Other measures under consideration include forcing credit card companies to increase minimum monthly repayments on cards to encourage consumers to repay debts more quickly.
And the government is also considering whether to make companies change the order in which debts are paid off. Currently, on many cards, the most expensive debt - often cash withdrawals - is paid off last.
The Office of Fair Trading is to carry out a review of the market for high cost credit, such as pay day loans and door step lending.
The government has announced it will appoint a 'consumer advocate', who as well as educating the public will be able to bring legal cases against companies on behalf of groups of consumers.
