Confusion reigns about credit card rates

Consumers need clearer information on credit card costs, the Office of Fair Trading (OFT) acknowledged today.

A Treasury select committee met today to inquire into the transparency of credit card charges. At the meeting, the OFT said that specific scenarios in "pounds and pence" were needed, as well as information on when interest starts being charged.

The OFT, which has been heavily criticised for its slow progress in regulating credit card providers and protecting credit card users, has already introduced a requirement for "summary boxes" which will appear on adverts, promotional material and pre-sales contracts. These will clearly state interest rates and charges to make it easier for consumers to compare credit cards.

The select committee highlighted a link between a lack of transparency in the credit industry and people acquiring runaway debt problems. The minister for employment relations, competition and consumers, Gerry Sutcliffe, said: "I want to make sure that the consumer is protected from the types of adverts and products that are not in their interests."

Mr Sutcliffe said he felt that the charges levied when credit card holders paid their bills late or exceeded their credit limit were "outrageous" and that "the industry has got to justify the level of charges".

Crucially, confusion remains about the calculation of annual percentage rates (APRs) and no solution is in sight. The OFT uses one method of calculation and APACS, the group representing the payment systems for all the major UK banks and building societies, uses another. This makes it impossible for consumers to compare rates.

The chairman of the OFT Mr Vickers admitted: "I cannot hold out hope that the APR calculation will be resolved."

With interest rates set to rise, the pressure is now on to speed up regulation and provide credit card users with the information they need to make the right choices.

Norman Lamb, liberal democrat member of the committee, said: "Mr Sutcliffe has conceded that the government is not acting fast enough, but there seems to be little sense of urgency to get things right when they could solve the problems at a stroke."