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In the light of new government thinking, should credit card cheques be banned?
Yes, says Andrew Hagger Head of PR at moneynet.co.uk
There are a number of things that land on my doormat that make me curse under my breath. The fluorescent coloured menu from the local pizza emporium is high on my list of letterbox hates, but the envelope containing credit card cheques takes my displeasure to an altogether different level.
This may seem extreme, but having worked in financial services all my life and personally witnessed the pain and hardship that these pieces of paper can cause in the wrong hands, I know the damage they can cause should not be underestimated.
One of the big problems is that people under financial pressure see a credit card cheque as an easy way of boosting their bank balance and buying themselves some breathing space. Alternatively, they may use it to make the minimum payment on another card as they continue to juggle an ever increasing pile of debt.
Perhaps a bigger plus point for someone struggling with money is that a credit card cheque saves having to admit to their problems or speak to anyone about it, and because of that they are prepared to put up with the high costs associated with this type of borrowing. Unfortunately, they are merely delaying the inevitable and will eventually be faced with a far larger stack of debt.
In the Moneynet debt survey last year, almost a quarter of people admitted that they would rather pay high rates of interest on a loan or credit card to get by than admit to their close family that they were in financial difficulty. It's a shocking indictment of the state of the nation's finances if people would rather get into debt than share their worries with those closest to them.
And while I agree that a credit card cheque may offer a short-term fix, it comes at a hefty price. The repayment on a £500 cheque can easily rise by an additional £150 in fees (3%) and interest (28% APR) in just 12 months.
Sending these cheques to people with little financial discipline is akin to posting bars of chocolate through a school letterbox. Even though official figures say only 7% of cheques are used, this is still 7% too many in my view.
Also, it's too easy for credit card cheques to fall into fraudsters' hands. The main problem here is that you don't know when they are being mailed to you, so if they are lost or intercepted en route, the first you may know about this is when you receive your next credit card statement. While the credit card company is liable for such losses, there is still the hassle and inconvenience to deal with.
Feeding these cheques to your shredder not only produces a satisfying feeling; it also wipes out both the temptation and potential fraud factors - all in a matter of seconds. These cheques may only be part of a much larger indebtedness problem in the UK, but we need to tackle the individual components if we are to make a difference.
No, says Sandra Quinn director of corporate communications for APACS
I don't use credit card cheques personally, and if it weren't for laziness I could easily ask my card company to stop posting them to me. If I did, my provider would be obliged to stop immediately in accordance with industry guidelines - otherwise the Banking Code Standards Board would be more than happy to hear about it.
But should they be banned outright? Definitely not. There is no evidence that credit card cheques cause real financial hardship. Just because something divides opinion is not a good enough reason to ban it.
Legislation should be proportionate to the problem it hopes to resolve. Yet figures from APACS, the UK payments association, show that at the end of 2008 credit card cheques accounted for 0.18% of total consumer debt. Last year we spent £3.23bn using them, amounting to just 2% of all spending on credit cards.
They are primarily used for two things: balance transfers, and paying suppliers, such as plumbers, who don't accept credit cards - so they are of value to the customers who use them.
Despite concern about the higher APRs that credit card cheques attract, most are used at promotional rates offered by one credit card company to encourage a customer to transfer an outstanding credit card balance. So that customer will be paying a lower rate on any balance outstanding, and that has to be a good thing.
It's also claimed that sending credit card cheques through the post opens them up to fraud. However, fraud was committed on fewer than 3,500 credit card cheques last year, down from more than 15,000 in 2004, and totalled £7.5m. This compares to plastic card fraud, which amounted to £610m last year, made up of 1.4m cases, according to APACS figures.
Anyway, no company should be sending out these cheques with the name of the holder already completed, and the steps taken over the past couple of years to combat fraud seem to be working. If fraud does take place, victims will get their money back.
This debate is about choice; if you don't like credit card cheques, take responsibility and ask the card company to stop sending them or change your provider.
• Do you always bin credit card cheques when they arrive? Or, if you have used them, did they help your cash flow or simply leave you with bigger problems?
Write to Cash, The Observer, Kings Place, 90 York Way, London N1 9GU, email cash@observer.co.uk or join the debate online at guardian.co.uk/money
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