Credit cards are in need of a clean up

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The Independent Online

Choosing a credit card has always been a minefield. But fortunately for the card providers, most consumers remain blissfully unaware of the army of pricing tricks and tactics that they use to make their offerings look more competitive than they really are.

Although most new card customers only take the time to look at the APR, and how long the introductory interest-free period lasts for, there are dozens of other differences between cards – all of which can end up costing you money if you're not careful.

The most common trick is to only allow you to pay off the lowest interest bearing debt on your card first. For example, if you spend £500 on your card one month, and then another £500 the next, any subsequent payments you make will go towards paying off the most recent transactions first. Meanwhile, the £500 you spent in the first month will continue compounding interest. The only lender not to pull this trick is Nationwide.

Other cards start charging interest from the moment you make a purchase, rather than the moment the transaction clears on your card (usually three days later). And while some cards allow you an interest free period on every transaction (meaning you'll pay no interest at all if you pay your balance in full before that day), others do not.

Earlier this year, Which?, the consumers' association, finally decided to try and call time on the industry – asking the Office of Fair Trading (OFT) to look at ways of standardising the way that credit cards providers charge their customers interest.

As Which? rightly pointed out – it's impossible for consumers to make an accurate comparison between cards without spending hours pouring through the small print of each lender – to check what their pricing policies are. The APR simply doesn't tell the whole story.

Sadly, the OFT don't seem to want to get involved. Having considered Which?'s request, they said this week that they'll have a chat with the industry and see if they can get companies to all be a bit more consumer friendly, but that they can't be bothered to launch a full-scale inquiry. They also seem sympathetic to the claim that the card providers' ability to fiddle around with the small print is what keeps the market competitive and adds to consumer choice.

But do we really want to have a credit card industry that offers the smart consumers more choice by duping the less savvy?

On a personal level, it suits me just fine. I'm perfectly aware of the card providers' dirty tricks, and take the time to have a close look at the small print before I get involved with a new company. But the reason the card providers can afford to take on customers like me – who pay their balances off in full each month, without incurring any interest – is because they have thousands of customers who get caught out by their traps.

The industry is right to say that consumer choice may be reduced if it is forced to standardise its pricing – and some consumers will indeed be worse off. But thousands of customers who are (usually unbeknown to themselves) propping up the lenders' profits would at least get a fairer deal.

Unfortunately, the majority of those who get caught out, and pay additional charges, are the customers who can least afford it. Meanwhile, the chief beneficiaries of the opaque and complex system are those of us who probably could afford to pay a little more for the convenience of owning a credit card.

The same is true in the mortgage market as well – where customers naturally compare headline rates, without always taking account of all the charges.

If the Government is not prepared to force the industry to be more transparent, it must at least do more to make consumers aware of the risks they face every time they take out a financial product.

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