Days Numbered For UK Credit Card Cheques
There have been calls from consumer watchdogs and customers alike that the UK credit card cheque system be abolished. It’s been one of the most unpopular products ever offered by UK financial institutions.
The Department of Trade and Industry open a consultation on how to improve the transparency of the system. Now The Royal Bank of Scotland has announced that it is no longer going to offer the product from the end of the September. So, are the days now numbered for UK credit card cheques? It would appear that way!
The practice of sending out unsolicited credit card cheques has been widely condemned by many consumer watchdog groups. However, RBS decide as early as January this year that it would no longer carry out this practice and this, says Nick White, head of personal finance at uSwitch, is:
“tantamount to an admission that it’s only commercially viable for the banks to do so if they can send them out solicited – encouraging customers to use them who otherwise would not.”
While also noting that RBS’s decision was: “certainly a step in the right direction and one which we [uSwitch] hope other providers will follow.”
The chances that other provider will follow as Mr. White would like seems more of a possibility now that APACS, the UK payments association, has launched a new credit card cheque summary box that will spell out all of the terms and conditions of the credit card cheque and which will need to be sent out with all credit card cheques by year-end.
Given, however, the claim by many that credit card cheques are a key factor in the rise of credit card bad debt, and given also that RBS’s bad debt currently stands at £680 million for the 6-month period ended June 2006, APACS’s recent move and the unpopularity of UK credit card cheques is unlikely to have been the root cause for RBS to decide to stop offering this product.
More likely was that it makes good commercial sense not to be associated with a product that is surely going to only be faced with increased spotlight on its product and practice the more transparent it becomes. Which begs the question of how long a product that offers lenders an annual percentage rate of more than 20% can continue to flourish, or is it simply the case that the move by RBS is the first nail in the coffin of the credit card cheque and the other 10 providers of credit card cheques will soon follow suit?
Richard Smith
1st September 2006
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