Credit card cheques withdrawn by MBNA

Posted in 'Personal Finance' by Barry Stamp

23 April 2010

Credit card cheques have long been the focus of official criticism and despite two Government enquiries that failed to prove that they were as harmful as many critics say, new regulations originally put forward by Lord Mandelson in 2009 will stop the practice of mailing unsolicited credit card cheques to consumers from June 2010.

Ahead of that deadline, US-owned card giants MBNA has announced that it will withdraw issuing credit card cheques altogether, on the basis that '...increasingly, the majority of our customers are choosing to access their card accounts by other means.'

Campaigners against credit card cheques argue that they are often treated as cash withdrawals and therefore attract a high interest rate, whereas on the other hand many of the other card companies that issue credit card cheques argue that these are very often issued on the basis of a cheap low-interest deal, so the converse is true. Arguments that credit card cheques result in higher levels of ‘hardcore’ debt have also never been proven. What is incontrovertible is that many credit card cheques carry a fee, usually matching a cash withdrawal fee or balance transfer fee. However, cash withdrawals on cards, and balance transfers do not attract the same bad press from critics as the much-maligned credit card cheque.

When used sensibly, credit card cheques can help both consumers and small businesses in a crisis, are significantly cheaper than bank overdraft funding, and are considerably quicker to access.

Even after the new laws come into effect to prevent the card companies from sending out credit card cheques in a random manner, you can still ask those companies that permit their customers the flexibility of credit card cheques for a supply. Card companies that have issued credit card cheques in the past include Marks & Spencer, Barclaycard Goldfish, the Cooperative Bank, Capital One, Sainsbury’s Bank and Citibank – not a shabby set of brands by any means.

So if you have kept a pile of credit card cheques in a drawer, what do you do with them? If they are issued by MBNA, or if you no longer require them, tear them into four pieces and throw them out. Once torn in this manner, they are classed as ‘mutilated cheques’ and cannot be used or abused.

If you think you may need them for a rainy day, just keep them safe and secure, in the same way as you would a normal cheque book. Before you use the cheques, check on the card company’s website or ring their Customer Service number to find out what the costs are, and if you have a choice, use the cheapest one available.

With lenders still with their hands in their pockets, access to a card that has credit card cheques available can be a real contingency to cover any unexpected downturns in your financial fortunes. The current Best Buy credit card which still offers the option to use credit card cheques is the AA credit card. With a Typical APR of 16.9% this is well priced, and at present the card has a 0% balance transfer offer for 12 months (the transfer must be done in the first 90 days of the account opening and carries a fee of 3%) and 0% interest on purchases of fuel and motoring and AA costs for 12 months. There’s also a cashback option of 1% for AA members or 0.5% for non-members, or generous reward points.

It’s been a long time since we have seen a card offer so much from a lender who has a wide lending appetite.

Apply for an AA card now