Cutting out confusing small print

CATs have made their mark on Isas and mortgages and now they're about to get their claws into credit cards. The government wants to make it easier for the nation's 23 million credit card-holders to know exactly what they're being charged, and to give those hunting for a new card a better idea of which ones offer a decent deal.

To this end, it is bringing in so-called CAT marks on credit cards. In order to be able to display the mark, a card will have to have user-friendly terms, with no nasty surprises hidden away in the small print.

CAT marks (the "CAT" stands for Charges, Access and Terms) came in for Isas last year and for home loans in April, and the government is so enamoured with the concept it now wants to extend it to other financial products. The aim is to encourage card companies to provide better, clearer information so people know exactly what they have to pay and can shop around for the best card for them. Ministers could also insist that card providers put limits on some charges they impose, and do away with others altogether.

The Treasury is concerned that while there are a lot of attractive headline rates around, some may not realise these often last only a few months or only apply to balance transfers. However, it hasn't decided what the CAT marks will look like - it will be consulting over the next few months, with a final decision expected in the spring.

This week Jobs and Money canvassed the view of some of the industry's experts as to what changes we might see.

Some people might wonder why the government has chosen to home in on credit cards, bearing in mind that intense competition between the growing number of providers has resulted in the lowest rates ever seen in the UK. Introductory annual percentage rates (APRs) have plunged as low as 3.5. But below the glittering headline rates there often lurk hidden nasties - like stiff penalties for late payment or exceeding your credit limit.

And while there are undoubtedly some cracking rates on offer, mainly from new providers, many of the biggies such as Barclaycard and NatWest have standard interest rates of 19-20 APR - more than three times the current bank base rate (6%).

So what are some of the areas where the government could act?

Small print fees such as late payment charges and penalties for going over your credit limit.

The government may well want to set limits on the charges that can be imposed. Credit cards tend to fall into two different camps, says Liz Chettleburgh at financial data specialists Moneyfacts. Some cards don't offer the lowest rates on the market, but also don't impose any small print fees, while others offer an attractive rate but charge a variety of fees. Late payment charges are one of the most common types of penalty, and an example of a card that falls into this camp is RBS Advanta, which has an introductory APR of just 4.5 until March 1 2001 but a £12 late payment fee, and charges the same amount if you exceed your credit limit. NatWest also charges £12 for late payment and £15 for going over your limit; Lloyds TSB charges £15 for both.

One of the providers that charges the most is Egg, which makes you shell out a hefty £20 every time you pay late or if you go over your limit. But then you have to balance that against that fact that Egg's card has a very good rate (10.9 APR for purchases, and just 2.5 APR on balance transfers for the first six months) plus it offers you 1% cashback - 2% if you use the card in the "Egg shopping zone" of online retailers.

Withdrawing money from cash machines using your card .

Ms Chettleburgh says the government might want to put a cap on this fee. Almost every card company imposes a charge, typically 1.5% of the amount withdrawn, with a minimum charge of around £1.50. Lombard Direct is one of the very few providers that doesn't charge for this.

Administration charges for foreign usage.

This is typically 2.75% of the transaction value, so if you spend £100 with your card on holiday, the card company might charge you £2.75. Only a handful of issuers don't make a charge - Nationwide is one. And one or two will impose a lower charge if the transaction takes place in an EU country. Again, ministers may want to put a ceiling on the maximum that can be charged.

Other fees and costs.

Many companies charge for sending out a duplicate statement - with NatWest the fee is £5. You may find other fees lurking in the small print too. Lloyds TSB scrapped its annual fee last year but instead has a £10 "low usage" charge if you use your card less than 10 times in a year and incur no interest in the same year.

How the interest is charged.

Ministers may well want to standardize this. Many card providers charge interest from the date the item is charged to the account, but a few, such as NatWest and Nationwide, charge from the date the goods are purchased. Charging interest from the date the item is bought in effect means the meter starts running as soon as you plonk your plastic down on the shop counter.

Putting a maximum limit on the interest that can be charged.

One would assume this would be high on the government's agenda, but some experts question whether the government is likely to meddle with rates. Kathy Lewis at the Credit Card Research Group, which represents all the major card issuers, says there is "an awful lot of competition out there". Average APRs have fallen substantially and are 25% lower than four years ago, with even lower introductory rates, she adds.

Annual fees.

These have almost completely disappeared in the last few years. Only a small handful of providers now impose an annual fee, including American Express Blue (£12) and Clydesdale Bank (£10). Barclaycard has one, but won't charge it for the first year and will waive it thereafter if you spend a minimum amount on your card.

The interest-free period.

Most cards offer up to 59 days' interest-free credit, though with a few it's less than this or nothing at all.

The Treasury says that "price transparency" is likely to be at the heart of whatever it does. It wants to force credit card terms and conditions out into the open so consumers don't get "sucked in" on the basis of unclear information.

One of the other things it is likely to look at is how changes to interest rates are communicated to customers. It may want to lay down requirements about how people are informed about changes and may also decide there should be more of a link between the movement of the bank base rate and credit card rates.

The government is bringing in CAT standards in response to the Cruickshank review of high street banks published in March, which set out dozens of recommendations on giving customers a better deal. Don Cruickshank, head of the review team, believes credit card statements, in particular, are not nearly clear enough.

Kathy Lewis says the industry will welcome anything that improves information, provided it does not lead to consumers being even more confused.

A user's guide to getting the best from your plastic

If you're looking for a new card and don't usually pay off your balance at the end of each month, your priority should be a low interest rate.

Cards offering a very low introductory rate for purchases include Nationwide building society (3.5 APR for the first six months, then 14.6 APR), Capital One Bank (3.9 APR for the first six months, then 12.9 APR), RBS Advanta (4.5 APR until March 1 2001, then 17.9 APR), Marbles (4.5 APR for six months, then 14.9 APR) and Hamilton Direct Bank (4.9 APR for six months, then 11.9 APR).

However, if you don't fancy switching again once the special offer rate ends, you may be better off going for a low-ish standard rate that doesn't disappear after a few months. Northern Rock offers a card with a standard rate of 10.5 APR, while Egg and firstdirect.com both charge 10.9 APR.

If you pay off your bill in full each month, thereby avoiding interest charges, look at the perks on offer. Cashback, air miles and donations to charity are all popular. Aside from Egg (see main story), other cards that offer cashback are Alliance & Leicester MoneyBack card, American Express Blue and the Morgan Stanley Dean Witter card. Alliance & Leicester this week announced it will be offering double money back to the end of the year for all new customers joining between August 14 and October 14. They will earn 1% when they spend up to £4,000 on a card and 2% on further spending up to £20,000.

Intelligent Finance (IF), the Halifax's new internet and telephone bank whose launch has been delayed until later this month says it will be offering people the opportunity to pay no interest on credit card borrowings. It will operate a system whereby it connects up products such as current accounts and credit cards, giving people the chance to offset savings against borrowings.

If you have more money in your IF current account than debt on your IF credit card, you can offset one against the other and enjoy a zero-interest credit card. IF's standard card rate will be 10.8 APR.

Some credit cards offer special deals with other companies. Lloyds TSB offers deals on British Midland flights, First Call holidays, Hertz car hire, Hoverspeed and Thistle Hotels. Many cards offer free travel accident insurance - typically up to £50,000. NatWest says this doesn't just cover you when you go on holiday; it also means that if you buy your rail or bus season ticket with your card, you are covered.