Thinking inside plastic's box

From next year, credit card companies are promising to provide customers with clearer information and less confusing small-print.

After complaints that the details of charges and interest rates are too hard to understand, and growing calls for external regulation, the credit card industry is moving to put its house in order.

This week, the Association for Payment Clearing Services has written to the Commons Treasury Select Committee with proposals that should make it much easier for consumers to understand credit card charges.

This will include support for a "summary box" which will provide a standardised, easy-to-read panel of charges and benefits, which should allow consumers to make direct comparisons between different credit cards.

These should start appearing on credit card application forms and information leaflets by next spring.

With concerns over record levels of consumer debt and the high interest rates charged by some store and credit cards, there has been growing pressure for greater clarity in the information available to cardholders.

John McFall, chairman of the Treasury Select Committee, says that "the credibility of the credit card industry is at stake here - with people feeling that they have been fleeced".

His cross-party committee has been snapping at the heels of the credit and store card companies, asking why some cards are charging such high interest rates when base rates are so low. And he wants consumers to have clearly-presented information so that they can ask themselves the same question.

In the select committee hearings, the straight-talking Mr McFall presented how this thought process might work when customers realised they were being offered rip-off rates: "Jeez, this is an APR of 28%. This is nothing but highway robbery. I will not do it."

The use of clearer information should help to flush out more of the credit and store card Dick Turpins, he hopes, and he has been pressing for the credit card industry to find a way to do this sooner rather than later.

"There is a need for the industry to work together quickly to provide a consumer box with all the relevant information about APRs and repayments."

He says that his committee will expect to be given a timetable next month for how this will be implemented.

Store card companies, which have been notorious for sky-high interest rates, should also be battening down the hatches, as the committee is expected to turn its attention to the wider question of competition, when so many different shops use the same financial providers for their store cards.

There is certainly plenty of evidence of the need for greater clarity in how we use consumer credit. A survey from Citizens Advice this week showed that almost a quarter of us have no idea how much we owe in loans and credit cards.

This isn't really surprising when often the only updates are from monthly statements. While we're used to finding out a current account running total from cash machines, phone and online banking services, it's not so likely that we'll know the damage on the credit cards.

It could also be that we don't really want to know the bad news, because the Citizens Advice survey showed a picture of growing credit dependence, with a fifth of borrowers using credit cards and loans to pay basic household bills.

The latest figures on credit card spending, published this week by the Credit Card Research Group, also showed a continuing surge on the plastic. In July, we spent £9.24 bn on credit cards, an increase of 10% on July 2002.

If you're already wincing at the amount on your credit cards from the summer holi days, you won't be alone, because these figures show credit card spending on travel has risen by a massive 18% compared with last year - averaging over £40m per day during July.

With such huge amounts, it's important to know as much as possible about how we're being charged.

And much attention will be paid to how the theory of the consumer-friendly summary box. Egg, for one, supports the call for such boxes, but spokesperson Mark Maguire says there has to be a strict, industry-wide application of transparency rules, with no room for credit card companies wanting to fudge the information on charges and rates.

And he says a test of this will be how the rates will be presented on cards which charge according to type of customers. Telling consumers that rates are from 14% to 29% will not really give them the kind of information they need.

Mr Maguire suggests that the concept of the price comparison box could be usefully applied to other types of borrowing, such as personal loans.

Nationwide, which introduced its own version of a summary box last year, welcomed efforts "to improve clarity and understanding in the credit card market".

MP Barry Gardiner, who has campaigned on consumer issues, has already come up with another area which is crying out for a standardised consumer information box: mobile phone charges. And he is planning to put down parliamentary questions this autumn.