Last week the Government proposed a ban on unsolicited credit card cheques, hoping to put an end to reckless unsecured borrowing and lending.

Credit card cheques have wreaked havoc with the finances of unsuspecting credit card customers for years. One of the big problems has been that people who are under pressure have seen a credit card cheque as an easy way of boosting their bank balance and to buy themselves some breathing space, even if just for a couple of months. Many indebted people have also been using the cheques to make the minimum payment on another card as they continue to juggle an ever increasing pile of debt.

Andrew Hagger of Moneynet.co.uk says people have been unfortunately merely delaying the inevitable and eventually running out of credit, and are then faced with a far larger pile of debt.

He says: "Whilst a credit card cheque may offer a short term fix, it comes at a hefty price. A £500 cheque can easily spiral by an additional £150 in fees and interest in just 12 months. Sending these cheques to people with little financial discipline or will power is akin to posting candy through a school letterbox.

"These cheques are only part of a much larger indebtedness problem in the UK, we need to tackle the individual components, no matter how small, if we are to make a difference."

Louise Bond, personal finance expert at uSwitch.com, says: "Sending out unsolicited credit card cheques has long since been an act of complete irresponsibility on the part of providers, and finally we have less talk and more action in bringing about an end to this practice."

Bond says that last year alone, more than 14.1 million UK consumers were sent more than 280 million credit card cheques – 97% of which were unsolicited. She also says that 3.2 million of these cheques were used by consumers spending a staggering £3.6bn. In total, providers a pocketed £571m in handling fees and interest.

Bond adds: "Providers have been capitalising on the lack of understanding amongst consumers around hefty fees associated with this form of credit, which has resulted in the active encouragement of consumers to view them as ‘friendly-freebies' or a quick fix solution to cash flow problems, and not, as they should be regarded, as a last resort."

SOURCE: Moneynet.co.uk, uSwitch.com, 02/07/09

To keep up with the latest news and comments on current financial affairs please visit the Secured Loan Blog.