DTI accused of failing to act on card charges

By Grainne Gilmore

THE Department of Trade and Industry has come under fire for letting credit card companies off the hook over card charges.

Under new proposals announced yesterday by the DTI, lenders will not be required to use a standard formula when calculating interest charges. This would have allowed customers to compare charges on different cards.At present, lenders are free to calculate interest charges on credit cards in any way they choose, and according to the Consumers’ Association they employ about ten different methods.

As a result, the actual charges paid on cards showing the same annual percentage rate (APR) could differ by as much as 76 per cent.

The Commons Treasury Select Committee, which is investigating credit card charges, believes that two or three methods of calculation would be satisfactory.

However, in a move criticised by the Consumers’ Association, the DTI has opted not to standardise the calculation method when the rules on APRs are changed in October.

Mike Naylor, of Which?, the magazine published by the Consumers’ Association, said: “It will be virtually impossible for even the most sophisticated consumers to compare cards.”

Under the DTI’s proposals, information about the method of calculation would be given in a summary box, the new table of costs and charges intended to inform customers about the price of borrowing on a card.

But John McFall, chairman of the Treasury Select Committee, said this was not enough.

“Further work needs to be done,” he said. “If there is a box where the information is meaningless . . . customers will still be left completely in the dark.”

The DTI argued that standardising interest charges could inhibit competition between lenders.

However, this brought a critical response from Nigel Beard, another member of the committee. “How can there be competition when it is not clear what the calculation is?” he said.

“I am surprised that the department has been sucked into this silliness.”

A spokeswoman for the DTI said: “With improved transparency, consumers will be able to select the right product for the way they use credit.”