MPs lambast card issuers

Credit card bosses are encouraging consumer debt by allowing customers to "tiptoe to disaster", according to the chairman of the Treasury select committee, John McFall.
His fierce attack on hidden credit card charges came during a Commons hearing yesterday after the Association for Payment Clearing Services, or Apacs, had given evidence to the committee on what steps were being taken to provide consumers with clearer product information.

Mr McFall told company chiefs that they were "not living in the real world". They "needed their heads banged together", and he accused them of "industry failure".

"I think there needs to be a real shake-up in this industry."

Mr McFall added that attitudes in the industry were "remarkably complacent" and "unbelievable".

The committee, which is investigating the transparency of credit card charges, quizzed witnesses including the chief executives of Nationwide and the market leader, Barclaycard, over why the industry had failed to agree on a single method of calculating annual percentage rates.

MPs accused firms of using APRs as a "smokescreen" to hide the real charges cardholders face each month, making it harder to calculate the true level of their debt.

Under the current system, because of subtle differences in the way APRs are calculated by individual companies, some consumers end up paying more than others - despite being on the same advertised APR.

Committee members also accused credit card providers of misleading consumers by burying important payment information in the small print of marketing literature.

MPs lambasted practices such as sending customers unsolicited cheques that can incur higher rates of interest than transactions made with cards. They also queried the widespread practice of increasing credit limits without consultation, saying it lured people already in financial trouble into further debt.

Yesterday's hearing was the latest in a series on credit card industry practices. Consumer groups presented their case to the committee last week prompting it to extend the scope of the inquiry to include store cards, some of which have APRs in excess of 30%.

The committee gave the industry until September to come up with a single calculation of APRs.

MPs also called on card issuers to come up with suggestions for an "honesty box" - a list of basic information all card providers would agree to include on bills and marketing literature to allow customers to make like-for-like comparisons between cards.