MPs savage bankers over credit card charges

The chief executives of four of Britain's biggest banks yesterday received a mauling from MPs over the charges and complex terms they impose on customers through credit cards.

Members of the influential Treasury Select Committee complained that even academics with financial qualifications whom they had asked to look at the details of a number of credit cards had taken hours to understand the terms and conditions.

In a highly charged hearing with the chief executives of Lloyds TSB, Barclays, Royal Bank of Scotland and HBOS, politicians called on the banks to make the true cost of credit cards more transparent by informing customers more clearly about the details of different cards.

Jim Cousins, the Labour MP for Newcastle upon Tyne Central, attacked products such as Barclays' "0 per cent Forever" card for being "clear and obvious bait" to draw customers in before charging them more under certain circumstances.

All four banks, as well as MBNA, the American credit card giant which also operates in the UK, said they were committed to making their cards easier to understand but cautioned that standardisation of terms and conditions could cut down on choice and, therefore, reduce competition.

A number of card issuers have already signed up to an initiative by Apacs, the banking trade body for clearing services, to get card providers to send a "summary box" to customers before they purchase a card. By next March, Apacs wants providers to include in the box details such as charges, different payment rates and how long customers have as interest-free periods.

The move has been welcomed by consumer groups, but they have said it will not go far enough. Mike Naylor, a senior researcher at the Consumers' Association, said: "We would like to see the summary box in monthly statements as well as when the contract is initially signed. We would also like to see the end of the real tricks, which still happen with credit cards."

The group of MPs also pressed the banks for more concessions and attacked the aggressive way in which they have mailed customers to try to get them to take up credit card offers. Fred Goodwin, the chief executive of the Royal Bank of Scotland, was singled out after it emerged that his bank, which also owns NatWest, had earlier this year sent an application form for a gold credit card with a £10,000 credit limit to a dog called Monty in Manchester.

However, it was Matt Barrett, the chief executive of Barclays, who attracted the most flak after he revealed that he did not borrow money on credit cards because it was too expensive. Barclays later said Mr Barrett, who will step up into the chairman's seat at the end of next year, made the comment in the context of discussing what the best methods of long-term borrowing were.

Other attendees at the committee hearing did not manage to wriggle off the hook. John McFall, chairman of the committee, dubbed Eric Daniels, chief executive of Lloyds, the "quiet man" after he failed to speak up along with Mr Barrett in defence of the double digit interest rates Lloyds and other banks impose on credit card customers.

Barclays said it made £450m of profits from credit cards last year. HBOS, which is an amalgam of Bank of Scotland and Halifax, said about half of its £3bn of profits were from retail banking, with credit cards making up one part of that amount. MBNA said it made £209m in profits from its European cards business in Europe. They all denied the profits were excessive compared with other parts of their businesses.

One way in which the credit card industry is expected to become more transparent is over annual percentage rates (APRs). At the moment banks calculate the rate in different ways, making it particularly hard to compare products. However, the Government is widely expected to change the Consumer Credit Act, enforcing a standardised method on the industry.

BARRETT FINDS HIS CREDIT IS ALL USED UP

"I don't borrow on credit cards because it is too expensive."

Matt Barrett

"Your bare-faced cynicism could be very amusing."

Jim Cousins, Labour MP for Newcastle upon Tyne Central, to Mr Barrett

"Do you recognise what excessive interest rates are?"

John McFall, chairman of the Treasury Select Committee and Labour MP for Dumbarton

"It should not be beyond the wit of man to demonstrate to an ordinary person how they are likely to be affected [by the payment terms]."

Andrew Tyrie, Tory MP for Chichester

"Is 17.9 per cent excessive when Bank of England base rates are 3 per cent? I reckon it is excessive. It is ridiculous."

George Mudie, Labour MP for Leeds East