Credit Card Information 'Difficult to Understand'

By Andrew Woodcock, Political Correspondent, PA News

Consumers find it difficult to understand financial information relating to their credit cards and are confused about how much their debts will cost them, according to research released today.

More than three-quarters of card-holders do not know what APR (annual percentage rate) they are being charged, even though it is the key piece of information which determines whether they are getting a good deal, found the survey for the Office of Fair Trading.

The research was published as the OFT and Department of Trade and Industry responded to MPs’ criticisms of their oversight of the credit card market.

In a scathing report last December, the influential Commons Treasury Committee said consumers were being “badly let down” by lenders and that the regulatory regime operated by the OFT and DTI had failed to keep up with developments in the industry.

In its response, published today, the DTI said that changes to make credit card borrowing easier to understand would start coming into effect in October this year.

And legislation to strengthen licensing of the industry and bring about a “significant overhaul of the credit regime” would be brought forward as soon as parliamentary time allowed.

The DTI “strongly rejected” the committee’s accusation that it had failed to act quickly enough to prevent abuse by lenders. Proposals for legislation will be published in May following the completion yesterday of a three-month consultation on its White Paper on the issue.

Today’s OFT research suggested that 71% of British adults now carry at least one credit card, with 37% holding two or more.

Less than half of those questioned (47%) paid off their credit card balance in full each month, while 38% routinely allowed debts to “roll over” to the next month and 13% sometimes did so, even though this generally meant they incurred interest charges at a higher rate than if they had taken out a loan.

Of those who did not pay off the balance in full each month, the average amount outstanding in a typical month was £718. But some 21% had built up debts of more than £1,000.

The survey found that, while 60% claimed to have a good or fair understanding of credit cards, many were unable to answer basic questions about deals that were on offer.

Less than half (43%) correctly picked the best deal from three sample ads, and just 2%-3% were able to calculate the minimum payments they would face if they ran up debts on any of the cards being advertised.

People taking part in the survey voiced support for the inclusion of a standardised summary box in all credit card marketing material, containing information such as APR, additional charges, minimum payments, interest-free periods and credit limits.

The summary box proposal was strongly backed in the Treasury Committee report. The DTI today confirmed that it would require consumers to be given key information about credit agreements before entering into a contract.

OFT chairman John Vickers said: “Consumers need key information presented in a way that is easy to understand to make good choices about credit cards. Our research provides consumer evidence on how to do this.”

FDS International interviewed 1,890 British adults between December 15 and 31 for the OFT.