Credit Card Cheques

A cheque book issued on a credit card account by a fairly small number of card issuers. Often carry administration fees of around £25 per cheque. Interest can be charged at cash withdrawal rate, so be careful to check the costs before you use them.

Credit card cheques are similar to cheques issued on current accounts. They are a means of paying for something when you don't have cash and you can't use your card, and can be made out to shops, tradesmen and anyone else you might pay with an ordinary cheque. Instead of using a cheque guarantee card to back your purchase you use your credit card, and instead of the money coming from your current account it is charged to your credit card.

However, it is not like a normal cheque. While the amount you spend with the cheque is charged to your card, just as if you used the card in a shop to make a purchase, there are some crucial differences between how the transactions are treated by the card provider.

The main difference is the cost. For example, a customer with one of the main credit card providers, would pay no interest on purchases for the first three months they hold the card and 17.9% APR after that. If they used a credit card cheque their purchase would not be subject to the three-month introductory offer and would be treated as a cash advance, attracting an interest rate of 27.9%. To make matters worse, even if they paid off their balance in full when their statement arrived, the interest would have been mounting up since the day the cheque was handed over.

In contrast, on purchases made with the card they get up to 56 days interest-free added unless the balance is not repaid in full and on time. Despite the extra cost, consumers who use cheques actually get less protection than those who pay by card. Transactions using credit card cheques are not covered by section 75 of the Consumer Credit Act, which makes the card provider jointly liable if there is an error with something paid for by card. This is because the card issuer does not have a direct relationship with the supplier.

Consumer groups are also unhappy about the way the cheques tend to be issued. Instead of simply giving cardholders a book of cheques when they first apply for a card and leaving them to get on with it, card providers tend to send them out on an ad hoc basis, without waiting to be asked by their customers.

One problem with this is that people are not expecting to receive them so they don't notice if they go astray. This increases the chances of them being used fraudulently as the cardholder does not know to contact their card provider if the cheques are missing. The introduction of chip and pin means if someone has already stolen or cloned your card they will find it much easier to use these cheques than to use your card in a store.

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