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In a sign that UK consumers are finally becoming more financially savvy, they turned to their debit cards in 2008 as credit use continued to plateau and cheque use slumped, payments association Apacs has said.

Apacs also said that while spending on credit cards rose only slightly from £124bn in 2007 to £126bn, debit card spending rose 9% to £245bn from £224bn. This means that debit cards accounted for nearly three-quarters of all transactions with plastic cards during the year.

The decline of cheques continued, with use down 10.4% on the previous year.

The effect of the credit crunch can be seen in the Apacs figures that show the number of credit card holders and cards in issue each fell by just over 2% in 2008 compared with 2007.

The number of debit cards in circulation in 2008 overtook the number of credit cards for the first time.

Apacs said that in 2007 there were 72 million debit cards in circulation and 73 million credit and store cards. In 2008 there were 75 million debit cards and 71 million credit cards.

The number of cash machine withdrawals also rose slightly.

In May last year, the group that monitors ways of spending, the Payments Council, said the cheque was in “irreversible decline” after 350 years of use. With fewer High Street stores accepting cheques, the number of transactions made by cheque fell steeply again in 2008.

But supporters of the cheque have been giving this form of payment their support on the anniversary of one of the earliest examples of the cheque.

There is hope from many analysts that the shift away from credit cards and towards debit cards may mean that the profligate British consumer has finally managed to live within their means. The ability to consolidate credit cards has also assisted.
It is of course far too early to tell if this is a long term trend of behaviour or simply a result of credit being much more difficult to get hold of. Once the credit market begins to ease it will become clear if this is a definitive move away from the credit reliant habits of the past or not.

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The Government has begun to attempt to clean up the advertising of financial services after a series of misleading adverts regarding the selling of loans of managing debt.

The main areas of concern are misleading adverts by claims management firms offering to write-off people’s loans or credit card debts. Firms guilty of making dubious claims to lure customers will be closed down.

The charity Citizens Advice has said there has been a recent spate of bogus adverts from claims handling firms. It said statements that most loan agreements were “unenforceable” were particularly misleading.

These ads appear to offer an easy way out to people who have credit debts they are struggling to pay.

Some claims firms suggest that any credit card or personal loan agreements struck before April 2007, and worth less than £25,000, may not be enforceable if the credit company does not have sufficiently accurate paperwork.

However, many credit agreements do meet the legal requirements and therefore can’t easily be challenged as unenforceable. Anyone believing that companies offering credit would leave themselves open to this sort of legal loophole are either excessively optimistic or very silly.

The government department involved, the Ministry of Justice (MoJ) listed some of the claims currently being made in newspaper, radio and internet adverts that it said were misleading.

Among the bogus claims were such phrases as “eighty percent of credit agreements are unenforceable,” “fifty million credit agreements are created every year, at least 25 million are unenforceable” and “we’ll get your credit cards written off within 6 weeks!”

In addition to the specifically financial fallacies used there are age old advertising tricks such as claims that “fast results are guaranteed,” “we have a 100% success rate” and “a positive outcome is guaranteed”.

The Office of Fair Trading (OFT) has pointed out that any business involved in offering advice about paying or rescheduling debts needs a licence under the Consumer Credit Act.
A claims management firm that offers these services without a licence is guilty of a criminal offence and can be prosecuted.

Furthermore, any debt advisory firms, licensed by the OFT, that break the rules on publishing misleading adverts could be closed down or fined up to £50,000.

The Citizens Advice Bureau also pointed out that people in trouble with their debts can use its own free services at one of its local offices.

There is a certain extent to which anyone who believes an advert offering a 100% success rate in writing off debt deserves to find themselves disappointed. However, the nature of these companies is that they prey on people who cannot know any better and this is why the measures being taken are an important and positive step.