The legal nature of cards payment and the risk of insolvency Essay

The legal nature of cards payment and the risk of insolvency - Essay Example There exists a cutthroat competition that prevails in the credit card market in UK as there is a high level of card literacy among British consumers and this has resulted in the expansion of the market, with the number of cards and card transactions are showing a double-growth in recent periods in spite of global economic recession. Further, spending through credit cards in UK witnessed a dramatic increase and rose to ? 41 billion in 1995 from just ?10 billion in 1985 and then up to ? 101 billion in 2002.1 This research essay will analyse in detail about credit cards, debit cards, cheque cards, charge cards, etc. and the legal nature of the above cards and how they differ from each other and precaution to be undertaken by consumers while dealing with each type of cards in an exhaustive manner. Credit Cards Credit cards are issued based on the bank’s customer’s credit history, his total wealth and his income level. The credit limit starts from a few hundred pounds to man y thousands pounds. The client employs these cards to buy products and enjoy services or to get cash from the card service provider. The customer is expected to pay off his debt within the payment period and in case of any default, interest will accrue. Credit cards have some limitations as it could not be used for very large or very small payments. For small payments, credit cards cannot be used as it would not justify the cost of usage for the same. The credit cards will always have a security limit and due to security issues, these credit cards have a limit and cannot be used for large business transactions2. Secured Credit Cards Under collateralised or secured credit cards, the quantum of credit is decided by the quantum of liquid collateral one able to give and despite of one’s past bad credit history, credit cards are issued to applicants. Thus, secured credit cards are issued to those with bad credit history, people with no credit history or individuals who do not qual ify for traditional credit cards. To be eligible for this, a customer has to make a deposit usually for a ?500 or more for one year or 18 months by way of certificate of deposit with the issuing banker which holds it as a security. Then, the customer has the credit limit to the value of the deposit and if the customer makes a default, then, the bank may use the deposit to adjust against the outstanding. Despite the fact, these cards still attract annual fees and interest charges that are equivalent or greater than those of regular credit cards3. Cheque Cards Cheque cards are identical in general appearance and in size to that of credit cards and contain analogues similar details. All major British banks and Irish banks are issuing these types of cards. Under this category, the bank issues a card that bears the name of the bank, its address, the customer’s specimen signature and his name, a special cheque card account number and the credit limit applicable. The cheque card iss uing bank ensures to honour the cheques drawn by its customer in favour of third parties, provided the limit mentioned in the cheque card does not exceed the amount on each cheque. Before issuing the cheque cards, the banks should have to establish the creditworthiness of their customers4. It is being undertaken by the cheque card issuing bank that any cheque not exceeding a certain amount fixed by the bank will be honoured subject