Card cheques that could cost you dear

CAR buyer Mark O'Shea was pleased to accept the offer from his credit card company to use its cheques rather than the plastic card itself. What he didn't realise was that it would cost him £3,000.

Mark, 38, decided to buy a new VW Golf last October. The dealer would not take a credit card, so Mark wrote a cheque for the £3,099 deposit. He used one of the dozens of cheques that MBNA, in common with most other card firms, regularly send to cardholders. In fact, MBNA's marketing brochure urged him to use this payment method in just such circumstances.

A few weeks later, Mark, of Wilmslow, Cheshire, received a letter from a firm of liquidators saying that the dealer had gone out of business and suggesting that Mark had little chance of getting back his £3,099.

Even worse news was to come. Under credit laws, card firms have to accept joint liability with shops and companies that provide goods and services to cardholders. This means that if the worst happens, the card firm picks up the bill - or so Mark believed. But this does not apply to payments made by cheque.

MBNA turned down Mark's claims and would not listen to his arguments that it had failed to warn him of the risks involved in cheque payments.

The US-owned bank, with four million card holders in Britain, maintains that cheque payments count as cash transactions and these are not covered by Section 75, the relevant part of the Consumer Credit Act.

MBNA told Financial Mail: 'In this case, we feel it was clearly a cash transaction and so not covered.'

The issue is being taken up by trading standards officer Steve Playle at the Brent and Harrow office in London. He has written to all card issuers asking them to clearly explain what he calls the 'seriously reduced protection' involved with cheque payment. He suspects the failure to spell out the disadvantages of using cheques might not be mere oversight.

Not only do cheques offer less protection, they usually carry higher interest charges than straightforward card transactions, making them more profitable for banks.

Playle says: 'With a few exceptions, card lenders are failing to tell borrowers of the drawbacks of credit card cheques.'

He is also concerned that the aggressive distribution of credit card cheque books, often sent out in blanket mailings, encourages borrowers to rack up dangerous levels of costly debt. He wants the Department of Trade and Industry to consider regulating the use of cheques in its overhaul of credit legislation announced last summer by Trade and Industry Secretary Patricia Hewitt.

Capital One, RBS Advanta, Bank of Scotland, Halifax, Barclaycard, Tesco and Abbey National all distribute cheques for cardholders to use.

Among these, Barclaycard, Abbey and Tesco put clear warnings in the cheque book, or alongside the cheques, about the limited protection that is offered when they are used.