Rip up your credit card cheques today

October 30, 2006

Credit card companies are like any other business organizations - profit driven. If there is any way they can get an extra penny in interest, default charges or fees from you they will take it.

Credit card cheques are the ultimate in the banks or credit card companies greed. Not only are credit card cheques not requested by a cardholder but when supplied their charges are not clearly explained.

This year APACS, the UK payment association, have finally got their act together and have been working with banks and card companies in an effort to make credit card cheques more transparent to the consumer.

From 2007 credit card cheques will have a summary box similar to the ones seen on credit cards. The summary box will enable credit card cheque recipients to quickly and easily see charges and interest rates at a glance.

Are the efforts by APACS enough? Many feel credit card cheques are unnecessary and other forms of payment could be used even in times of emergency.

The major problem is because the cheques are associated with the consumers own credit card it is thought that by using a cheque the same interest rates and charges will apply. Unfortunately this could not be more wrong.

Normally when a person uses their credit card to make a purchase, they will have a substantial interest free period until they have to make payment to their credit card company. This period can be up to 56 days, depending on the date of the purchase. There is no interest free period when using a credit card cheque. Interest is charged from the day of purchase.

The bad news doesn't stop there, with standard APRs of around 16 per cent, credit cards are one of the most expensive forms of credit available. So what do credit card companies and banks do? yes they make the use of credit card cheques more expensive and apply an even higher interest rate. So not only is the consumer having to pay interest from day one, they are also being charged an extortionate rate.

So we have established that by using a credit card cheque the consumer loses their interest free period that is associated with their card, they are charged a higher APR than their card and there's even more! On many occasions when a consumer uses a credit card cheque they will also be charged a handling fee of up to 2% of the purchase price.

Banks and credit card companies are adding three types of extra charges but their not happy with this and want more.

Everyone knows that by using their credit card they are covered by the suppliers payment protection insurance. Unfortunately they are not if they use a credit card cheque. So by using a credit card cheque the consumer is not covered against any risk.

What is completely offensive is that after these extra charges, removal of insurance and the limited information offered to consumers, banks and card companies on many occasions automatically send out credit card cheques to cardholders without being asked. Why?

If you have any credit card cheques in your possession, do yourself a favour and rip them up right now.