Cheque guarantee cards to be scrapped
Cheque guarantee cards are to be phased out within two years in light of the “terminal decline” of this payment method.
The use of guaranteed cheques has fallen by 70% in the past five years, and were used to support less than 7% of cheque payments last year.
As a result, the Payments Council has announced guarantee cards are to be phased out by mid-2011. This means that while consumers will still be able to pay using cheque, and businesses will still be able to accept them, there will be no need to use a debit or credit card to guarantee amounts between £50 and £250.
While four million consumers say they still use guaranteed cheques regularly, the Payments Council says that in many cases the guarantee function is not an essential part of the transaction.
Brian Pomeroy, chairman of the Payments Council, says the use of the cheque guarantee card is in “terminal decline”.
He adds: “We went to great lengths to listen to the views of all users and acceptors of guaranteed cheques and have only made the decision to withdraw [guarantee cards] after satisfying ourselves that no group will be unfairly affected or find that there is no means of making a payment.”
Banks and building societies will be contacting their customers who still use cheque guarantee cards to inform them of the changes and offer advise of alternative payment methods.
Jacqui Tribe, manager of the UK Domestic Cheque Guarantee Card Scheme, says that failing to phase out the guarantee card scheme could have exposed more customers to the risk of fraud. In 2008, losses of £43 million were reported as a result of cheque guarantee card misuse.
The cheque card was introduced in October 1965, and guaranteed cheques up to £30. Since 1990, William Shakespeare has appeared as a hologram on these cards.
According to APACS, the UK payments association, just over 4.4 million cheques were issued each day in 2007, compared to a peak of 11 million in 1990. By 2017 it estimates there will only be two million per day.
Retailers are increasingly refusing to accept any payments by cheque, including Tesco and Marks & Spencer. Banks like HSBC, meanwhile, have cut their cheque guarantee limits.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.