OFT to rein in lenders making misleading interest rate claims

John Vickers, the director-general of the Office of Fair Trading, is today expected to unveil a crackdown on retailers and credit card operators who tout for business with misleading interest rate claims.

Mr Vickers is understood to be drawing up a blacklist of lenders guilty of a new list of prohibited tactics for selling credit agreements. Top of the list is the practice of describing temporary low-interest periods using the annual percentage rate (APR) system.

Credit card issuers heavily advertise introductory APRs guaranteeing a low interest rate for the first six months, only to be replaced by rates of up to 20 per cent when the initial period ends. However, the cost of such loans can climb without any explanation of what a borrower will end up paying over the year as a whole. Lenders use different assumptions to calculate the APR, depending on the borrowing profile of each lenders' customers.

Although they can be enthusiastic participants in this bidding war, the banks' public response is that they would welcome clarification. "If we are all stopped, then we are all on a level playing field," a bank executive said.

But credit card lenders are divided according to their market position and the aggressiveness of their marketing strategy. Consequently the OFT has held prolonged negotiations in an effort to reach a compromise.

The OFT has new powers called stop now orders, which can compel offending companies to alter their behaviour without having the opportunity to make their case before a full competition inquiry. The lenders named today have opted to comply with the orders rather than go to court.

Yesterday, the Consumers minister, Melanie Johnson, deplored what she called "irresponsible lending" related to misleading APRs at a time when high street spending and borrowing has raced ahead.