A cheque guarantee card is essentially an abbreviated portable letter of credit granted by a bank to a qualified depositor, providing that when he is paying a business by cheque and the retailer writes the card number on the back of the cheque, the cheque was signed in the retailer's presence, and the retailer verifies the signature on the cheque against the signature on the card, then the cheque cannot be stopped and payment cannot be refused by the bank. Note that the arrangement works only for cheques drawn on an account provided by the bank that issued the card.
Cheques drawn against insufficient funds in this manner can result in an overdraft with penalty interest. In some European countries, such as Germany or Sweden banks no longer issue cheque guarantee cards and can refuse to pay on cheques where a cheque guarantee card has been used thus making them worthless and almost all retailers now refuse to accept cheques.
In the United Kingdom plans are in place to withdraw the cheque guarantee scheme by the year 2011. First trialled in 1966 and fully introduced in 1969 the scheme, due to the popularity of debit cards, is now only used to guarantee 7% of the 1.4 billion cheques issued each year[1], a figure which itself is declining.
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