MPs blame credit card industry for debt woes

The credit and store card industry came under heavy criticism from MPs yesterday in a report published by the Treasury Select Committee as the Government announced plans to make consumer credit disputes easier to resolve.

The select committee, which has been investigating credit and store card providers since the summer, concluded that lack of transparency in terms and charges had contributed to the accrual of "serious personal debts" in the UK.

John McFall, chairman of the committee, said that as £120billion was spent on cards in 2002, and £13billion is expected to be spent this Christmas alone, "it is vital that people know they are being treated fairly and reasonably". He added that consumers had been "badly let down" by card companies whose lack of transparency left them confused about charges and unable to shop around.

The committee found that marketing practices were "highly misleading and highly damaging" to the interests of consumers, and could lead to people "sleep-walking" into debt.

Other problems included two different ways of calculating APRs (annual percentage rates), and 10 ways of calculating charges. The committee claimed the Department of Trade and Industry had been busy launching consultations but had not acted, while the Office of Fair Trading had been passive.

Last week the DTI published a white paper outlining proposals to renovate the 1974 Consumer Credit Act. It also promised to clamp down on loan sharks. Yesterday it announced plans to introduce quicker dispute resolution procedures for consumer credit.

The OFT has launched an informal investigation of store cards and aims to publish findings of a "fact-find" into consolidation loans early next year. The Treasury Select Committee has already extracted a promise from the credit card industry to design and publish a "summary box" with all marketing material to enable consumers to compare cards more easily.

The Consumers Association hailed the report as a "victory for consumers". Mike Naylor, senior researcher at Which?, the magazine of the Consumers' Association, said: "This is great news for consumers and throws light on the opaque credit card market. We hope that the verdict will force the industry and regulators to drive out the underhand practices used to hoodwink its customers."

The OFT also welcomed the MPs' report. Martin Hall, director general of the Finance & Leasing Association, which represents the UK consumer credit and asset finance sectors, said its members were already committed to improving transparency.