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MONEY COMMENT
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Credit and store card issuers have been slated in a highly critical report released by the powerful Commons Treasury Select Committee. MPs complained that the UK credit card market suffers from excessive interest rates, reckless lending and a lack of transparency. As a result, consumers are confused about charges and wary of shopping around. What's more, misleading advertising and marketing practices make things even worse, leading some borrowers to 'sleepwalk into debt'. In addition, the MPs were alarmed that APRs (annual percentage rates, or yearly interest rates) are calculated in two different ways, plus there are ten different ways to calculate charges on cards! They concluded that this whole muddle is holding back competition and hampering consumers from comparing costs. The MPs also strongly criticised the Office of Fair Trading and the Department of Trade and Industry for failing to regulate card companies effectively and not keeping up with market developments. MPs have called for a number of reforms, including a single method for calculating APRs and a standard calculation for the way interest charges are applied. They would also like to see Summary Boxes (currently being introduced into marketing material) on monthly statements, with this becoming a requirement of the Banking Code. MPs also want card issuers to display information on how long it takes to repay a debt by making only the minimum monthly repayments. It's scary stuff, as we show here and here! Another recommendation is to include calculators or examples to show customers how costs change with different patterns of use. Other industry practices that came under attack included using 'risk-based pricing' - linking APRs to applicants' credit histories - and displaying typical APRs. Finally, the committee wants to put a limit on banks giving unsolicited credit-limit increases to cardholders, a ban on unsolicited credit-card cheques, and clear guidelines on marketing. Phew, what a telling off, and not before time! MPs have finally said what we at the Fool have been saying for many years: that credit cards can easily become weapons of money destruction! So, if you don't want to become a slave to your plastic, check out these tips: Find a better card in our Credit Cards centre.