UK credit cards: MPs angry at lack of transparency

A government committee says the credit card industry has done little to improve price transparency.

February 16, 2004 4:29 PM GMT (Datamonitor) - John McFall, chairman of the Treasury Select Committee, has written to the credit card industry body APACS to express his anger over what he sees as the industry's "lack of commitment" in responding to the call to make their rates and charges clearer. However, industry regulators should not risk baffling consumers with unnecessarily detailed information.

The Treasury Select Committee chairman's letter, also sent to the chief executives of several of the UK's largest credit card issuers, reiterated the committee's determination to improve the transparency of the information available to consumers. In his letter, Mr McFall accused the industry of a lack of commitment over measures to improve customer information.

The committee's investigation into the transparency of credit card charges took place over the summer of 2003 and created a number of headlines, one of the most notable being Barclays chief executive Matt Barrett's admission: "I don't borrow on credit cards because it is too expensive".

The committee found that consumers were not being provided with sufficient "clear and understandable" information on rates and charges and it made a number of recommendations, including the introduction of US style summary boxes onto marketing literature and statements. The committee also advocated an update to the Consumer Credit Act to enforce a single method for calculating APRs.

The main focus of concern is the introduction of the 'honesty box'. Basic research confirms that the majority of card issuers are well on the way to fully introducing these into their literature by the agreed March deadline, and some have already achieved this aim. However, the committee has further suggested that summary boxes should include scenario-based examples to help consumers make better-informed decisions.

A clearer APR calculation and a US style summary, or Schumer, box will almost certainly be of benefit to consumers. However, the usefulness of detailed breakdowns of rate calculations and charges applied to specific situations is debatable. These kinds of examples would only be directly applicable to a very few individuals and could therefore cause more confusion for the very consumers they are intended to help. The line between improving transparency and inducing information overload is a very fine one, and the credit card regulators should be wary of unnecessarily interfering with the minutiae of the market.