Session 2003-04 20 July 2004

Transparency of Credit Card Charges: Credit Card Charges and Marketing



The Treasury Select Committee published its report into the Transparency of Credit Card Charges on the 17th December 2003. The Committee made a number of recommendations and has been monitoring progress towards the goal of ensuring more transparency and competitiveness in the market together with fairness for consumers. The Chairman of the Treasury Select Committee, Rt Hon John McFall MP, has now written to the Chief Executives of the leading UK credit card issuers (Barclays, HBOS, Lloyds TSB, MBNA, HSBC and RBS) to assess progress, ahead of a proposed further hearing in October.

The text of the letter is attached.

Note for Editors

1. The Treasury Committee's First Report of Session 2003-04, 'The Transparency of Credit Card Charges' HC 125 was published on the 17th December 2003 and is available from Stationery Office Bookshops (tel: 0345 58 54 63). The full text is also available on the Internet (

2.  At the time of publication on the 17th December, John McFall MP, Chairman of the Treasury Committee, said:

"… We will be monitoring the actions of the industry, the Government & the regulators over the next 6 months to ensure more transparency and competitiveness in the market….  Meanwhile, we wish to work with the industry to help bring about a better deal for consumers and to end some of the endemic obscurity surrounding current industry practices."

The Treasury Committee is a Select Committee of the House of Commons, appointed to examine the expenditure, administration and policy of the Treasury, the Inland Revenue, Customs and Excise and associated public bodies.

Rt Hon John McFall (Chairman), L, Dumbarton
Mr Nigel Beard, L, Bexleyheath and Crayford
Mr Jim Cousins, L, Newcastle upon Tyne Central
Angela Eagle, L, Wallasey
Mr Michael Fallon, C, Sevenoaks, (Sub-committee Chairman)
Rt Hon David Heathcoat-Amory, C, Wells
Norman Lamb, Lib Dem, North Norfolk
John Mann, L, Bassetlaw
Mr George Mudie, L, Leeds East
Mr James Plaskitt, L, Warwick and Leamington
Mr Robert Walter, C, North Dorset


Credit card charging and marketing

Dear [Chief Executive]                                                 19 July 2004

1.  It is now over six months since the Treasury Committee published its report into the Transparency of Credit Card charges. As I indicated at the time the Report was published, the Committee remains keenly interested to follow up progress on the issues raised with the leading card issuers. Several of you  have engaged in helpful and productive exchanges with me, keeping the Committee informed of what your company has been doing. I am grateful for the cooperation you have given.

Recommendations in the Committee's Report

2.  Progress has been made against a number of recommendations. The industry has implemented a Summary Box, giving clearer information surrounding the terms and conditions of individual cards. All lenders have agreed the text of a warning on statements of the financial implications of only making the minimum repayment. The DTI has now published regulations setting a single standard method of calculating the APR. The review of the Banking Code currently being carried out and the proposed review of the Summary Box proposals offer the scope for considerable further progress in the coming months.

3.  However, in a number of areas there has been more limited progress. I am writing to re-iterate some of the Report's conclusions and to obtain your views on the subjects and questions indicated below.

a) Summary Box: Some examples of the Summary Box still contain small dense print and do not meet the objective of the Summary Box to make information available to the consumer in a clear and comparable manner. The Report recommended that APRs be displayed in minimum 18pt type. All issuers should ensure that their marketing material is clear. Would you be happy defending the quality of print of your Summary Box at a hearing of the Committee?

b) Scenarios: The Committee concluded that showing simple illustrations of the cost of borrowing could increase transparency for consumers. We welcome action by some issuers to begin to include scenarios on credit card literature. What work have you done to examine how you might include scenarios in your card literature?

c) Monthly statements: The Committee recommended that the Summary Box be included on monthly statements. Many issuers already include some of the information that is in the Summary Box on their monthly statements. Including the Summary Box would ensure that the information is in a standard form across the industry and would enable consumers to determine whether they are able to get a better deal elsewhere. Would your company be prepared to include Summary Boxes on credit card monthly statements from early 2005? Could agreement be reached to include such a requirement in the Banking Code?

d) Interest calculation methods: The Committee concluded that consumers cannot understand how differences in interest calculation methods affect the overall cost of credit. This has been supported by a recent survey that found that over 80% of consumers were unaware that these differences even existed. The Committee concluded that a degree of standardisation might be necessary and that there was a need to explain better to consumers the differences that existed. Many in the industry have said that this is a competitive issue and that standardisation would prevent them from offering products such as those credit cards with a low APR, but no interest free period. However, this would not be the case as issuers would still be able to do this provided that the method used and its implications were clearly explained to consumers. What are the prospects of further progress before October? (The Committee is also interested in the effect that the different methods of calculating interest charges have on the total revenue from a typical credit card portfolio and we will be approaching APACS to conduct further work in this area.)

e) Transaction/penalty fees: Issuers continue to maintain that these fees are genuine estimates of the loss incurred. However, in the absence of figures being available to show this, there will continue to be a suspicion that there is a penalty element in the fees. The Report called on all issuers to place figures on revenue raised from penalty fees in the public domain. Is your company willing to do this, or failing that, to submit the figures to the Committee in confidence?

f) Restrictions on unsolicited increases in credit limits. The Committee recommended that there should be restrictions on the number of unsolicited increases in credit limits placed in the Banking Code. Have you been supportive of this move in the current review of the Banking Code?

g) Credit card cheques: The Committee recommended that these should be accompanied by clear guidance concerning terms, applicable interest rates and conditions (for example greater clarity in respect of the effect of  the non-applicability of section 75 of the Consumer Credit Act 1974). Please could you submit copies of your latest marketing material to the Committee.

h) Payment Protection Insurance: How do you ensure that insurance is not sold to those who would not benefit from it? How can the market for PPI be made more competitive and consumers encouraged to shop around for the best deal? Could you supply to the Committee, in confidence if necessary, figures indicating how much is paid out in claims and collected in premium income for your PPI operation?

Credit data sharing

4.  Finally, I would like to turn to a topic only mentioned briefly in the report. The importance of adequate credit checking and data sharing has been demonstrated in recent months by a number of tragic cases. With current information technology, it should be possible for the risk of such situations to be reduced. We are aware of certain legislative barriers (on which I propose to write to the Information Commissioner) and the Committee hopes industry and regulators can together work out the best solution. The Committee has two concerns about the negative effects flowing from a lack of data sharing:

(i) It hampers responsible lending: Lenders may be unable to assess accurately a consumer's ability to take on additional debt. A consumer making the minimum repayment across a number of different credit cards may be struggling with debt, but would have a good credit record.

(ii) It prevents competition: With the increased prevalence of risk-based pricing (determining the customer's interest rate according to their credit record), non-sharing of positive information by lenders may preclude consumers from being eligible for the lower rates.

5.  I would appreciate your views on this issue of credit data sharing and a description of current practice in your bank-particularly whether you share both positive and negative data. What do you view as the barriers to further progress?

Future progress

6.  I hope the industry will take the opportunity to address these points during the current review of the Banking Code and the proposed review of the Summary Box scheduled for September 2004. The drive for improvement needs to come from the top of the industry. The Committee proposes to hold a further hearing with you, and the other leading issuers, in October to discuss the progress that has been made. I look forward to this being a positive session. This will depend in part on the actions of leading companies over the coming months and the outcomes of the reviews of the Banking Code and the Summary Box proposals.

7.  I am writing in similar terms, in the first instance, to Barclays, HBOS, HSBC, Lloyds TSB, MBNA (Europe) and Royal Bank of Scotland. To help maintain an open debate on these issues, I am placing this letter in the public domain. It would be helpful if the written information sought by the Committee could be received by 24 September.

Yours sincerely,

Rt Hon John McFall MP