The mailing of unsolicited blank cheques to credit card customers is to be investigated by the Financial Services Authority, which is concerned that it may be encouraging fraud.

Credit card groups send out hundreds of millions of unrequested blank cheques each year. Only a tiny fraction are cashed. Customers are instructed to shred them if they do not want to use them.

The cheques can be intercepted by dishonest postal workers or can fall into the wrong hands if thrown out with household rubbish.

Despite increased safeguards, some cheques are successfully cashed by fraudsters. The cheque-clearing organisation Apacs estimates that this type of fraud amounted to £4.6 million in 2005.

John Tiner, chief executive of the Financial Services Authority, said that the practice — which is known as carpet bombing and has been severely criticised by consumer groups — was on the agenda for the FSA’s newly created financial crime division.

Banks won a reprieve from an outright ban last year when the Department of Trade and Industry decided that better information on accompanying literature was sufficient to prevent consumers from being misled. But the FSA’s investigation is to focus on the risk of fraud and identity theft.

Of 235 million blank cheques sent out in 2005, only 4.3 million were used by their recipients, according to industry figures.

Mr Tiner said: “We will look at issues such as the appropriateness of marketing literature which contains nonessential and sometimes sensitive consumer data, such as unsolicited credit card cheques.”

He also suggested that there may be a crackdown on banks that partially fill in and then mail credit application forms to customers.

Most banks, including Barclays, Lloyds TSB and HBOS, send out unsolicited cheques. Those that do not include HSBC, Nationwide Building Society and Royal Bank of Scotland, which abandoned the practice last year.

Barclaycard, Britain’s biggest single credit card brand, sends blank cheques to 45 per cent of its active cardholders in the UK. It says that it sends cheques only to customers who are not new to credit and who have sufficient credit headroom.

There are safeguards, it says. For cheques to be cashed, they must have the customer’s account number and expiry date on the reverse — information that it says is not sent out with the cheques.

A few customers welcome the cheques, which allow them to pay traders that do not accept credit cards, such as casinos and some small tradesmen. But many regard them as an uneccessary intrusion or temptation that also raises the risk and inconvenience of identity theft.

They are also a very expensive way of borrowing, charging higher rates of interest even than on credit cards. New rules obliging banks to summarise the charges and other key terms of credit card cheques in a summary box are due to be incorporated into the Banking Code this year. Capital One Bank was reprimanded last year by the Banking Code Standards Board after mailing a million cheques to its customers with the cash amounts already filled in.

An FSA spokeswoman said: “Firms need to exercise care when using consumers’ personal details for marketing purposes, particularly where such marketing material could put customers at risk from identity fraud if intercepted by fraudsters.”

Apacs said that it was aware of the FSA investigation, and added: “We look forward to working with them and we’ll be happy to share with them any data we have collated which will assist them.”

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