The Office of Fair Trading has demanded a change in the law to restrict the use of credit card cheques.
The OFT says consumers need more information
These allow people to spend money on their credit card accounts without using a piece of plastic.
The OFT says purchases made with them often lead to higher interest charges, the imposition of a one-off fee and no interest-free period.
Last November the government asked for views on how people could be given clearer information about the cheques.
The Department of Trade & Industry wants to ensure that people who use credit card cheques know the implications of doing so and do not have to pay unnecessary charges.
This was backed up today by the OFT's chief executive John Fingleton, who said the current lack of information was unacceptable.
"Consumers need good quality information about the costs and other potential disadvantages of credit card cheques before they consider using them," he said.
"This isn't always happening and we urge the government to introduce legislation to protect consumers."
The problem with credit card cheques, in the view of the OFT and other critics, is that customers simply do not know how much they will be charged for using them.
Research has suggested that only a third of users know that they start paying interest straight away, and many people are apparently unaware that the interest rate they will be charged is higher than for conventional plastic card purchases.
As a result, the OFT is demanding changes to the way the cheques are marketed. It wants people to be told clearly:
- how the use of credit card cheques differs from the use of a credit card, for example when such cheques are treated as cash advances rather than purchases.
- the interest rate that applies and whether this differs from the rate charged for card purchases.
- when interest is charged and that there is no interest free period (if that is the case).
- whether additional fees or charges apply and how much.
- whether purchases using a credit card cheque benefit from the same protection as using a credit card.
The OFT's comments were welcomed by the consumers organisation Which? which called credit card cheques a rip-off.
It has been particularly critical of the industry practice of sending unsolicited cheques in the post.
"Cheques are sent to cardholders whether they want them or not," said Mike Naylor of Which?
"We want unsolicited credit card cheques to be banned, especially as we have found that companies use them to encourage indebtedness, for example cheques have been sent out with marketing literature suggesting they can be used to pay for holidays or gifts."
The OFT agrees with this and as part of its proposed changes to the law suggests that they should not be sent out without the card holder's consent.
But in response, the Association of Payment Clearing Services (Apacs) told BBC News that lenders were already putting their own house in order.
"The new banking code requires lenders to be more transparent about charges, the OFT research pre-dates this initiative," Sandra Quinn, Apacs spokeswoman said.
"In fact, the only area that the industry disagrees with what the OFT says is over its proposal that consumers should have to actively sign an opt-in if they want to receive credit card cheques," Ms Quinn added.