MPs attack credit card firms for 'highly misleading' practices

CREDIT and store card companies were criticised by MPs yesterday for a lack of transparency, irresponsible lending and excessive interest rates.

The Treasury select committee said consumers had been "badly let down" by card companies whose lack of transparency left them confused about charges and unable to shop around.

It added that companies’ marketing practices were "highly misleading and highly damaging" to the interests of consumers, and could lead to people sleep-walking into debt.

In a highly critical report it said other problems included having two different ways of calculating APRs, which measure how much interest is charged, and ten different ways of calculating charges on cards making it difficult for consumers to know if they were getting a good deal.

It added that a lack of transparency also stopped competitive pressure working properly and meant interest rates could be very high.

The committee said the regulatory regime governing credit and store cards was from a "bygone age" and had not kept up with changes in the market.

It said the Department of Trade and Industry had been busy launching consultations but had not acted, while the Office of Fair Trading had been passive.

John McFall, the chairman of the Treasury select committee, said: "Consumers have been badly let down by credit and store card companies.

"During December, the Christmas period, £13 billion is expected to be spent on credit cards. Consumers are good for the industry, but the favour is not returned."

The report called for a number of reforms including the introduction of a single method for calculating APRs, as planned by the government in its consumer credit white paper, and standardising the way interest charges are calculated.

It said that while the industry was committed to introducing a summary box, which will contain key information on rates and charges, in marketing material by April, it would like to see this requirement included in the Banking Code.

It also wants the box to be included in people’s monthly credit card statements along with information on how long it would take to repay their debt if they made only the minimum payment each month.

The committee

also called for an end to the situation where consumers do not know what rate they will be charged on a card until it is issued because of risk-based pricing.

The committee wants a limit to be placed on unsolicited increases in consumers’ credit limits, unsolicited credit card cheques to be banned and assessments of people’s ability to repay to be based more on their overall income and other credit commitments and less on just their repayment history.