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The government is set to outlaw credit card cheques in a major clampdown on high-risk lending to be outlined later today.
The unsolicited incentives to spend that are sent out in their millions each year appear to offer an easy way to pay bills and buy expensive items, but have huge drawbacks.
They are easy for thieves to steal and then use; they lose consumer credit act protection if the supplier goes bust; there is no "interest-free" period; and users are hit with higher interest costs than buying with the card itself. As they are charged as a "cash advance", a £500 cheque can easily cost an extra £150 or more in charges over a year.
Andrew Hagger of comparison site Moneynet said: "The people who use these rather than shredding them tend to be those with the biggest money problems. Sending these cheques to people with little financial discipline or will power is just like posting bars of chocolate through a school letterbox."
But Srini Gopolan, who runs the European arm of credit card group Capital One, defended the cheques. "These can be better than an unauthorised overdraft and could represent the best deal recipients can get. We do this responsibly and only 7% get used. We can't let people who can afford not to borrow have their views dictate policy," he said.
The government also intends to ban unsolicited credit limit increases on credit cards as part of a package of measures to reduce consumer debt. In a further move to eliminate risky lending Lord Turner, chairman of the Financial Services Authority, will announce a ban on 100% mortgages tomorrow.
The FSA is also expected to limit mortgage lending to three times a borrower's salary in all but exceptional cases, and no more than 95% of a property's value.
The ceiling is a response to the six-or-more times salary and 125% loans which helped ruin high street mortgage firms such as Northern Rock and Bradford & Bingley.
The move comes after Gordon Brown's request last month for the FSA to probe risky mortgage lending.
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