Credit card industry under fire

By Sean Farrell
LONDON (Reuters) - The Treasury Select Committee has ordered the country’s booming credit-card industry to stop overcharging and misleading customers.


The committee said in a report on Thursday that firms took advantage of outdated legislation to avoid improving information and service they give customers. It told lenders, the regulator and the government to implement measures to protect customers from excessive charges and misleading information.

The committee started its inquiry in July and grilled the chief executives of Britain’s biggest credit-card companies. If the committee’s instructions are ignored it will hold further hearings to find out why, Chairman John McFall told Reuters.

"The consumer is getting a bad deal," McFall said in an interview on Wednesday. "The industry have gone ahead and thought about themselves almost exclusively, to the detriment of the customer."

Credit-card spending rose to 120 billion pounds last year from 30 billion pounds in 1993 according to Bank of England figures. The amount owed on credit cards has jumped to 52 billion pounds from 10 billion pounds in that time, fuelled by the current consumer boom.

The industry has already responded to the committee’s inquiry by agreeing to have a summary box listing charges on all promotional material. The report said the box must be in large type and should include examples of the cost of borrowing.

MASKING COSTS

Lenders can charge "excessive" rates because annual percentage rates (APRs) are calculated in two different ways and can mask the true cost of borrowing, the committee said.

The committee criticised the Office of Fair Trading consumer watchdog and the Department of Trade and Industry for not clearing up APRs earlier. It said they should introduce a standard APR before planned legislation takes effect in October.

"What we have seen with the DTI is endless rounds of consultation, with the outcome that there is more consultation," McFall said. "We need action."

Lenders charge unreasonable penalty fees and sometimes use misleading marketing, the committee said. They should vary penalty fees according to the size of the customer’s balance or credit limit.

"A lot of the recommendations are very fair," said a spokeswoman for APACS, the card industry’s trade body. She added that some measures, such as on penalties, did not take account of the fact that credit-card lending is a commercial business.

The report accused Barclays, Britain’s biggest credit-card lender, of "sharp practice" for its "0 percent forever" product. The offer lets people pay no interest on money transferred to the card but requires them to spend 50 pounds a month at a typical 17.9 percent that they cannot repay before the interest-free balance.

The OFT ordered Barclays to change its advertising for the product last month. The committee said the product still encourages customers to get into more debt.

"Where they are looking to restrict our ability to give competitive offers to our customers, we will have to agree to differ," a Barclaycard spokesman told Reuters.

The industry should put a limit on unrequested increases to a customer’s credit limit to avoid encouraging people into debt they cannot afford, the report said.

The report criticised Britain’s retailers for overcharging on store cards and for having a "cosy relationship" with lenders that produce cards charging up to eight times the Bank of England base rate of 3.75 percent.

"The response from these companies is that they don’t have any control over the interest rates," McFall said. "We find that amazing."