Thinking Money reports on MBNA 's decision to ditch credit card cheques ahead of ban
March 25, 2010 (PRLEAP.COM) Business NewsThinkingMoney.org has been investigating why the UK's largest credit card provider MBNA has chosen to stop issuing credit card cheques from the end of March (ahead of the new legislation deadline).
MBNA, the Bank of America subsidiary, has decided to stop issuing credit card cheques to its 6 million UK card holders from 31st March. New law to be passed later this year will ban the unsolicited sending out of credit card cheques by UK lenders, but MBNA have gone one step further and opted to remove them altogether from their service offerings.
Credit card cheques have been disliked by many consumer groups due to their poor value and high fees. Often, interest rates are much higher than on the card itself and by using the cheque instead of the plastic, consumers can lose out on section 75 cover. The new legislation will no doubt be welcomed by many as another step towards fairer banking and the removal of irresponsible lending.
Credit card expert, Martyn Saville, from Which? said of the announcement: "It's great news that a major credit card company is finally seeing the light and scrapping credit card cheques. 'It's time other providers followed suit and scrapped credit card cheques, rather than use them to boost their own profit margins and dodge the consumer protection that the law provides under section 75."
Traditionally, millions of cheques have been sent out by card providers every year to allow customers to purchase goods or services where plastic isn't accepted. But the convenience comes at a cost as they usually carry a high interest rate and don't fall within any 0% offer that may be running on the card. As a result, they can prove to be an expensive way of buying which has meant they've been the focus of campaigner's cries for some years.
When asked why MBNA made this decision, Greg Reed, chief marketing officer for Bank of America Europe Card Services, said: "Whilst it's true that new legislation will change the way credit card cheques can be provided to customers, we have decided to go one step further and remove them altogether. This strategic decision is part of a number of changes we will be making over the coming months as we seek to offer better choice, added value and simplicity for our customers."
The ban of unsolicited credit card cheques is part of the Financial Services Bill that is to come into force later this year. The Bill plans to tackle consumer credit card debt, which currently stands at £55m. A major focus of the new legislation is to relieve the financial pressure that sees families using credit card cheques as a way to boost a bank balance or pay off another debt.
If the Prime Minister's weekly podcast is anything to go by, the move by http://www.MBNA.ie to scrap poor value credit card cheques will have the backing of No. 10. In it, Gordon Brown spoke strongly about ending the "sharp practices" of lenders, including "hiking interest rates they charge" and "increasing credit limits without being asked." One thing's for sure, with the UK's largest card provider going even further than the law does to offer a fair service, it's a victory for MBNA's 6 million card holders and the campaign for smarter lending, and better credit cards.