A welcome nail in the coffin for credit card cheques

Andrew Hagger of Moneynet.co.uk comments on the decision by MBNA to stop issuing credit card cheques from 31 March 2010.

The announcement today from MBNA that it will stop issuing credit card cheques from the end of this month is most welcome and should be followed by the rest of the industry.

One of the big problems has been that people who have been under financial pressure have seen a credit card cheque as an easy way of boosting their bank balance and to buy themselves some breathing space.

Alternatively they may have used it to make the minimum payment on another card as they continue to juggle an ever increasing pile of debt. The reality is that if they approached their card provider on a regular basis with a request to pay money off another credit card; there is a strong likelihood that the answer would be an overwhelming no.

For someone struggling with money it saved having to admit to their problems or speak to anyone about it, and because of that, people were prepared to put up with the high costs associated with this type of borrowing.

So whilst a credit card cheque may have offered a short term fix, it came at a hefty price. A £500 cheque can easily spiral by an additional £150 in fees (3%) and interest (28% APR) in just 12 months.

Sending these cheques to people with little financial discipline or will power was akin to posting bars of chocolate through a school letterbox.

The other issue with credit card cheques is that you don't know when they are being sent, so if they're intercepted in the post, the first you may know about it is when you receive your next credit card statement. Whilst the credit card company is liable for such losses, there is still the hassle and inconvenience to deal with.

In a week where new rights were announced for 30 million UK credit card holders, this proactive move by MBNA should be applauded, let's hope other providers follow this lead and that the credit card cheque becomes a thing of the past.