Following MP’s concerns, the DTI has launched an investigation into the unsolicited sending of credit card cheques to card holders. What are the concerns and are the tighter restrictions than those in the Banking Code in prospect?
Topic: Financial services
Who: The Department for Trade & Industry
When: November 2005
The DTI published a discussion paper on credit card cheques.
In the course of recent debates on the Consumer Credit Bill, MPs have raised the issue of credit card cheques being sent out unsolicited to the holders of credit cards. As a result, the area has become one of concern for the Government and this consultation paper seeks views by 24 February 2006 on what action might be taken, if any.
The areas of concern include worries that recipients are being encouraged to take out even more credit when they are already heavily in debt. There are also issues of transparency rising out of concerns that recipients of credit card cheques are not fully understanding the implications, for instance that there is no interest free credit period and that interest is calculated from the date of the transaction for which the cheque is used. There are also concerns over fraud: because credit card cheques are sent unsolicited they are seen as being particularly vulnerable to fraudulent use as the consumer is unaware that they have been dispatched.
Recent Banking Code changes
The consultation paper notes that in March 2005 the Banking Code was amended so as to deal with credit card cheques for the first time. The Code prescribes that customers have the right to say that they do not want to receive credit chard cheques, that they should be informed about any fees if they use them and that customers should be aware that they do not have the same level of protection against fraud compared to a credit card.
Another key provision of the accompanying guidance to subscribers which is intended to clarify the Code, is that credit card cheques should no longer be issued with the completed amount filled in. Related existing guidelines, the associated APACS best practice guidelines, stipulate that customers must be provided with very clear information about the cheques and the consequences of using them.
The Government's present view
The DTI paper notes that the Government's present view on the matter is that to ban the unsolicited issue of credit card cheques would be a disproportionate measure at this stage. This is bearing in mind the industry's current commitment to carrying out appropriate checks concerning the prospective consumer's creditworthiness before sending them out.
It is also recognised that there are situations where these cheques may be advantageous to consumers.
Clear information focus
All in all, therefore, the prime focus of this consultation is to ensure that consumers should have clear information about credit card cheques and the implications of using them.
Currently there is no set format for the provision of information to credit card cheque users. Some letters enclosing the cheques emphasise the use credit card cheques can be put to, but are less clear on the disadvantages of using the cheques may be.
With this in mind, the consultation paper wonders whether it might be appropriate to consider enhancements to the information requirements concerning the provision of credit card cheques.
For example there might be a requirement for information to be presented together as a whole and on the prominence or relative prominence of the information. There might be a requirement to give equal prominence to descriptions of the advantages and disadvantages of the cheques. To address concerns that consumers are often sent the cheques without actually requesting them, it might be appropriate to require a specific statement in the credit agreement such as "you may be sent credit card cheques."
The particular information the consumer might appreciate being clearly informed of would include what interest rate is applicable, and particularly does it differ from the rate applicable to ordinary credit card transactions, when interest charges start and whether there is an interest free period, whether they are transaction charges and what happens if you go over your credit limit.
Two particular options clearly under serious consideration are using existing legislative powers under the Consumer Credit Act to specify information that accompanies the credit card cheques, for instance in the accompanying letter.
Alternatively new regulations might specify information to be printed on the credit card cheque itself.
Why this matters:
The clear impression one gets from the consultation paper is that the Government is set on taking some sort of substantive action in this sector. Marketinglaw's feeling is that prescribed information, format and content requirements for accompanying letters are the most likely new measures and that we may well see new rules introduced by way of the new Consumer Credit Card Act coming into force in 2006. Watch this space!