Confusion on the cards

We're pretty good at applying for them, but not at understanding them. Although there are 63 million credit cards in the UK, with two-thirds of adults holding at least one, more than three- quarters of card holders do not know what annual percentage rate applies to their card, despite realising this is the key piece of comparative cost information.

Research by the Office of Fair Trading found that although 60 per cent of those questioned felt they had a good or fair understanding of credit cards, they couldn't answer specific questions or extract key information, such as the APR or fees for late payment or cash withdrawal.

Consumers welcome Government proposals to require credit card companies to print a simple summary box containing essential data, including the APR, additional charges, the minimum payment to be made, the interest-free period and the credit limit.

But online bank Egg is disappointed that the Government has backed away from demanding the standardisation of how interest is applied to purchases, on the grounds that it would stifle competition and product innovation.

It points out that 81 per cent of credit card users are under the incorrect impression that if two different cards with identical APRs are used in exactly the same manner, they will be charged the same amount of interest.

Mark Nancarrow, Egg's Chief Operating Officer says: 'Far from reducing competition in the credit card market, the standardisation of interest application methods would increase competition and choice.

'Lenders would be forced to compete on a level playing field, with the summary box providing consumers with a useful and simple means of comparing key features on different cards.'