MPs condemn UK credit card firms

Credit card firms have been accused of "misleading" their customers by an influential committee of MPs.
The 71 page report from the Treasury Select Committee condemned firms for unfair charges and complex small print.

Regulators were criticised for being "too passive" and "behind the times" in safeguarding customers.

The report called on credit card firms to stop raising credit limits without customer permission and ensure transparency over rates and charges.

John McFall MP chairman of the Treasury Select Committee concluded: "Consumers are good for the industry, but the favour is not returned."

Furore

The Treasury Select Committee began the review of the UK credit card industry in July.

In 1971 only one type of credit card was available, compared to around 1,300 credit cards on the market now.

In October, Matt Barrett chief executive of Barclaycard - the UK's largest card provider - caused a furore when he said that the interest rate charged by his firm made credit cards too expensive for "chronic borrowing."

MPs poured scorn on the different methods used to calculate the size of interest payments for credit card customers.

The committee said it was "astonished" that the method for calculating the Annual Percentage Rate (APR) payable differed between firms.

In fact, there are currently 10 different ways of calculating APR being used by UK credit firms.

Exorbitant

The Committee said that lack of transparency allowed some credit and store card providers to get away with charging exorbitant interest - often seven or eight times Bank of England base rate.

The report called for the upcoming Consumer Credit Act to include legislation imposing a single method for calculating APR.

In addition, the committee called for the urgent inclusion of summary boxes in all customer account statements and credit agreements.

We hope that the verdict will force the industry and regulators to drive out the underhand practices used to hoodwink its customers
Mike Naylor, Consumers' Association
Summary boxes will outline terms and conditions in plain English and the length of time it will take to pay off debt if consumers make just the required minimum repayment.

Regulatory failure

In a bid to tackle irresponsible lending the report calls for firms to stop sending unsolicited credit card cheques to their customers and to loan on the basis of income and current credit commitment rather than just payment history.

Some of the strongest criticism in the report was reserved for credit industry regulators.

The regulator's regime was condemned as no longer fit for the purpose.

The Department for Trade and Industry (DTI) and Office of Fair Trading was accused of launching consultation exercises with the industry while failing to tackle some of the worst excesses of the UK credit market.

DEALING WITH DEBT

Underhand

The DTI unveiled a host of proposals to combat sharp practices recently in the Consumer Credit White Paper.

Proposals included a duty on lenders to increase the size of small print and also to stop charging fees on loans settled early.

Consumer groups welcomed the conclusions of the select committee report.

"This is great news for consumers and throws light on the opaque credit card market," Mike Naylor of the Consumers' Association said.

"We hope that the verdict will force the industry and regulators to drive out the underhand practices used to hoodwink its customers."