Credit card calculations 'unfair for consumers

MPs are calling for a shake-up of the credit card industry after finding that "opaque and potentially misleading" information makes it virtually impossible for people to work out which card is best for them.

In a report published today, the Commons treasury select committee said even the bosses of many card companies accepted that the variety of interest calculation methods in use "can be unfair for the consumer".

It means an "illusion" can be created that a deal is better than it really is.

MPs ordered the industry to work with consumer groups to help make things crystal clear for the public, saying that without better information people would continue to arrive almost unknowingly at a point where they had built up dangerous levels of debt.

The MPs also homed in on problems such as the large penalties paid by customers who settle their bills late or exceed their limits, and companies' failure to share information about people's credit histories to stop borrowers getting into greater debt.

They urged the Financial Services Authority to investigate the selling of payment protection insurance, which covers customers who are unable to keep up payments on their credit cards, mortgages and loans if they are made redundant or fall sick. The MPs said they had "serious concerns" about the marketing of this insurance.

The new report comes 14 months after the committee issued a damning verdict on anti-consumer practices. Since then, card firms have brought in "summary boxes" outlining interest rates and other charges on promotional material, introduced warnings against making only the minimum repayments, and adopted a standard way of calculating annual percentage rates (APRs) for card advertising.

The committee said that while progress had been made over the past year in tackling some of the industry's bad practices, "more still needs to be done". It is proposing further measures including a ban on the unsolicited issuing of credit card cheques and better data-sharing by lenders.

MPs are demanding clearer summary boxes and added to the chorus of criticism over the penalty charges paid by many cardholders. The Office of Fair Trading is already investigating these fees, and last month the consumer organisation Which? claimed card companies were raking in £400m a year from them.

The firms say these charges are to cover the costs they incur. But committee chairman John McFall said it was impossible for the public to have confidence in their claims because the companies refused to disclose how much they make from the fees. The Association for Payment Clearing Services, the industry trade association, said its members remained committed to continued improvements.