Fears over credit card cheque scammers

There have calls to ban credit card cheques after customer groups and the consumer affairs minister Gareth Thomas have noted a rise in financial scammers, a result of "immoral" bank practices.

Figures released last week showed that credit card-cheque fraud has soared almost 30% from 2,665 incidents in 2007 to 3,428 in 2008. The banks have therefore been accused of adding to the risk of fraud by posting clients an increasing number of credit-card cheques.

The system works by banks sending cheques to credit-card holders and taxing excessive charges, often at more than 20%, compared with an average 17.7% on credit cards themselves. Credit card cheques have openly been criticised because they do not carry the same protection as a card.

However, banks justify such financial gains by saying that cheques are an alternative way of drawing on a card account where the card itself is not accepted, for example by a tradesman.

The UK payment body, APCAS revealed that at the end of 2008 credit card cheques accounted for 0.18% of total consumer debt. Last year UK consumers spent £3.23bn using them, amounting to just 2% of all spending on credit cards.

However, with this, APCAS noted that there has been a surge in fraudulent usage of these cheques, which added around £400,000 to overall financial crime.

Banks have also been accused of raising credit-card limits to try to temp customers into racking up more debt, an act several consumer organisations stated to be disgraceful.

Credit-card cheque customer case

An example of such manipulation is consumer Bennita Dray, 46, a lecturer from London, and a customer to Halifax bank for 12 years. The bank sent Dray credit-card cheques through the post. They also wrote to her to tell her that her credit card and overdraft limits had been increased.

However, Dray stated that she already owes the bank around £36,000, and did not ask for an increase She said: “It’s outrages.”

Halifax denied it was trying to increase Dray’s debt, to which a spokesman for the bank said: “We do not offer increased credit to someone who cannot afford it.”

Credit care
Peter Vicary-Smith from a consumer group said of the increasing situation: “Sending people unsolicited credit-card cheques and extending credit limits without being asked is not just irresponsible — it’s immoral.”

Thomas said: “Stopping the unsolicited sending of these cheques will help people take control of their finances and make things tougher for fraudsters who cost consumers millions each year.”

Therefore, in an attempt to protect consumers from getting into uncontrollable levels of debt, Gordon Brown stated that there would be a proposal of a White Paper on consumer rights and access for advice for those struggling to re-pay their debts will be improved.

The programme will look at preventing credit card companies from increasing spending limits and reduce sending out credit card cheques.

Stephen Sklaroff, a general director of a finance association group agrees with the reform, but reminded that any change should be well thought through: “Economic recovery relies on an affordable supply of credit to promote consumer confidence and boost spending.”