Light is cast on murky world of credit cards

MPs want action to help befogged borrowers, says Sam Dunn
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The Independent Online

An almighty alliance of government agencies, the regulator and consumer bodies is the only remedy to rid the credit card industry of the "smoke and mirrors" that lead consumers astray, according to MPs.

An almighty alliance of government agencies, the regulator and consumer bodies is the only remedy to rid the credit card industry of the "smoke and mirrors" that lead consumers astray, according to MPs.

With Britons' credit card balances heading towards £60bn, and eight million more cards in the UK than people, borrowers are still in danger of being duped by the illusion of a cheap plastic deal, according to a report released on Friday by the Treasury Select Committee.

After their exhaustive investigation into the UK's credit card industry last year, MPs on the committee are calling for changes that demand greater involvement from the Financial Services Authority (FSA), the City regulator, and from the Office of Fair Trading and consumer bodies such as Which?.

Jill Johnstone, director of policy at the National Consumer Council, says the committee's recommendations "home in on problem areas that new credit laws - on their way through Parliament - fail to address".

For starters, MPs want the FSA to investigate payment protection insurance (PPI), an added extra sold with cards or personal loans and supposed to protect consumers in the event of illness or job loss. Policies often carry crucial exclusions, making them of no value to the purchaser, the report says.

More data sharing between lenders carrying out customer credit checks is crucial too, MPs say, to prevent credit being offered to those unable to repay it. The current system, under which lenders may disclose different levels of information, was branded "inadequate".

In the past 12 months, a number of people have committed suicide after being allowed to run up debts far beyond their income. In the light of these cases, the committee's report recommends more co-operation between credit card companies, government departments and the independent Information Commissioner. At present, vital information is not being shared by card issuers as customer consent was not obtained when the account was opened.

Cardholders also need to have greater confidence that penalties imposed by lenders for late or missed payments and defaults are fair, the report says; an ongoing investigation by the Office of Fair Trading should help resolve that.

The obscure and myriad ways of calculating interest for the annual percentage rate (APR) have also led to demands for reform. A possible model developed by consumer groups and lenders might see companies adopting an APR standard - from which they could diverge only "so long as clear indications were given of the effect on consumers".

But the report isn't entirely critical of the credit card industry. It welcomes the progress made in the 14 months since December 2003, when the sector first came under MPs' scrutiny. Among the advances are the new summary boxes outlining charges on promotional credit card material, and warnings on card statements about the dangers of making only minimum repayments.

However, in both cases, more needs to be done, say MPs. The summary box should be standardised across the industry, and the minimum payment warnings more hard-hitting.

John McFall, Labour MP for Dumbarton and the committee chairman, pulls no punches. "Despite progress, consumers find it virtually impossible to work out which card would be the cheapest," he says. "The industry needs to tackle this problem as a matter of urgency."

In response, Sandra Quinn of the Association for Payment Clearing Services, the trade association of the credit card industry, says lenders will "continue to engage with the issues of transparency and competitiveness".

Meanwhile, the pressure on lenders will continue. The consumer groups are already lobbying for amendments to the Consumer Credit Bill and hope the report will trigger these.

But the FSA is lukewarm about the committee's recommendation that it look into PPI. A spokesman for the regulator says new rules on the sale of insurance are "adequate enough".

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