Session 2004-05 03 February 2005
CREDIT CARD CHARGES AND MARKETING
Consumers deserve better: More transparency, clearer information and more responsible lending is required.
Changes in the way credit card companies provide information to their customers are being recommended by the Treasury Select Committee in response to continuing concern about their practices.
The key recommendations are contained in a wide ranging report; and include evidence from the Chief Executives of seven of the main credit card issuers.
Problems the report focuses on include the confusing way interest is calculated, the significant penalties borrowers can be charged, unsolicited credit card cheques and the failures of companies to share information to stop people falling into greater debt.
Commenting, Committee Chairman the Rt Hon John McFall MP said:
"Consumers still deserve a better deal from credit card companies. Whilst the industry has taken on board recommendations from our previous report, they have some way to go to make their deals easier to understand and compare.
A standard way of calculating Annual Percentage Rates (APRs) has been adopted by credit card firms and used on marketing literature. However, the way companies calculate the interest charge due can be very different.
John McFall said: "Despite progress being made by the industry, consumers find it virtually impossible to work out which card would be the cheapest. As one issuer has acknowledged, an 'illusion' can be created that a deal is better than it really is. The industry needs to tackle this problem as a matter of urgency, if necessary through some degree of standardisation of interest calculation methods."
Credit card companies often charge significant fees to customers who make late payments, exceed their credit limits or bounce payments. Banks and Credit card companies receive millions of pounds in revenue through these charges.
Commenting, the Chairman said: "Credit card companies maintain that these
charges represent a fair recovery of the costs involved. However, it is impossible for the public to have any real confidence in their claims. None of the chief executives would reveal figures, arguing that they were commercially sensitive. I strongly welcome the investigation by the OFT into these tactics and hope their report will ascertain whether fees are being used as an excuse to take more money from cardholders."
Credit card providers don't all share customer information. This makes it very difficult to give an accurate picture about how much debt someone has. Sharing more data will stop people being allowed too much credit and will prevent unmanageable levels of debt from building up.
"Cases of extreme debt are growing so the need for companies to share
information on customers has never been greater. Credit card companies, together with the Government, must work to achieve this. By sharing information on customers, and encouraging responsible borrowing, credit card companies can provide people with better advice and prevent consumers from building up unsustainable debts."
The Committee's last report into Credit Card Charges, published in December 2003, received a positive response from the industry. Companies must now take note of the Committee's latest recommendations to ensure the situation continues to improve.
The report makes a number of important conclusions and recommendations including the following:
Better Summary Boxes:
The format and the placing of the summary box needs to be improved to make it clearer for consumers: there should be a minimum font size, with scenarios clearly showing the consequence of making the minimum repayment for prolonged periods, and the summary box should appear on monthly statements.
Clearer Interest and Calculation Methods:
Opaque and technical interest calculation methods mean that, even with the APR, consumers find it virtually impossible to work out which card would be the cheapest; this is highly unsatisfactory, and the industry must work with consumer groups to help make things crystal clear for consumers, if necessary through some element of standardisation.
Reasonable Penalty Charges:
Conclusion of the OFT investigation into penalty charges should involve the publication of sufficient information about the basis of charges to ensure that consumers can have confidence that they are reasonable and not punitive.
Comprehensive Data Sharing:
The current system of data sharing is inadequate and contributes to cases of over-commitment: lenders need to share full information regarding credit card accounts and to asses ability to repay using full credit data and an examination of the consumer's full credit commitments in relation to income; government and industry need to work together to tackle the legislative barriers to improved sharing of 'historic data'.
No Unsolicited Issuing of Credit Card Cheques:
In future, only customers should activate the issuing of these cheques
Appropriate Payment and Protection Insurance:
There are serious concerns about the marketing of Payment Protection Insurance, which need to be investigated by the FSA.
Notes for Editors;
1.Embargoed hard copies of the report will be available from the House of Commons Press Gallery and the Reception 7 Millbank from 1100hrs on Thursday 3rd February.
2. Media Bids/Request for interviews with the Chairman should be directed to Luke Robinson on 07834 312 705
3. For detailed information the Treasury Committee can be contacted on 020 7219 5769
4. As part of the inquiry the committee took evidence from the chief executives of the seven largest credit card issuers in the UK (Barclays, Capital One, HBOS, HSBC, Lloyds TSB, MBNA, RBS).
5. In December 2003 the Committee published its first report regarding the lack of transparency in the credit card market and noting dubious marketing practices. This report returns to the subject to review the progress the industry has made.
6. Committee membership is as follows: John McFall MP (Chairman), Nigel Beard MP, Jim Cousins MP, Angela Eagle MP, Michael Fallon MP, David Heathcoat-Amory MP, Norman Lamb MP, John Mann MP, George Mudie MP, James Plaskitt MP, Robert Walter MP.
7. The report's title is Credit Card Charges and Marketing and will be published as the Committee's Second Report, Session 2004-2005 (HC 274). The report will be available on the Committee's website from 1530 on Friday 4th February.