OFT 'failed' on card crackdown

A powerful committee of MPs yesterday accused the office of fair trading of "sounding like apologists" for the credit card industry and of failing in its duty to protect consumers from unfair practices.

Members of the Treasury select committee told the director-general of the OFT, John Vickers, that the watchdog had "sat back and done nothing" while credit card and store card issuers "duped" consumers with hidden charges.

Mr Vickers was also criticised by one MP for turning up to the committee "unprepared" and by another for responding to questions with "tangled" answers and "waffle".

Committee chairman John McFall said more needed to be done by the OFT to clamp down on card providers that charged high rates of interest concealed by small print and applied large penalties for late payment of bills.

Mr McFall said there was evidence the watchdog was "failing" to challenge practices that misled consumers and that little had been done to improve the situation since the OFT's pledge two years ago to crack down on the sector.

The committee, which is investigating the transparency of credit card charges, questioned witnesses from the OFT and the Department of Trade and Industry. The DTI is drafting a white paper to reform the Consumer Credit Act, 1974, aimed at giving consumers better protection.

MPs called on the OFT to explain why it had taken no action to standardise how interest rates are calculated.

At present there is no industry-agreed method for calculating interest. Subtle differences in the way annual percentage rates are measured by firms mean some consumers end up paying more than others, despite being on the same advertised APR.

Mr Vickers defended the OFT, pointing to action taken recently against credit card issuers in breach of advertising rules on APRs. MPs responded that "core" issues of how interest rates are calculated and communicated to consumers had not been addressed and needed more investigation.

They also asked the watchdog if the fact that more than 50% of store cards, which tend to charge much higher rates of interest than credit cards, are underwritten by a single company, GE Consumer Finance, was grounds for an investigation into whether the market was competitive enough.

Mr Vickers said there was no "magic percentage" share of market for triggering an investigation and that the OFT was doing everything within its powers to monitor the sector; new "stop now" powers introduced last year had already led to better enforcement.

Yesterday's hearing was the latest in a series during which MPs have lambasted card operators for failing to provide clear information about charges and interest rates.

At a hearing in July, credit card providers including the country's biggest, Barclaycard, were accused of "institutional failure" and allowing customers to "tiptoe to disaster". Store card operators were accused a week later of "running a cosy cartel".

Some of the biggest banks will appear before the committee next week. Industry bosses and the OFT have been told to report back next month with suggested transparency improvements, including the content of proposed "honesty boxes" on statements.