Credit Cards: lenders accused of unclear charges

Credit card chiefs have been hauled over the coals for their lack of progress on greater transparency for credit card charges - while Barclays Bank unveiled record profits, much of it made from credit card customers.

Barclays yesterday revealed that nearly a fifth of the £3.8 billion profits it made last year came from credit card borrowers. Barclaycard saw operating profits rise 17% increase to £722 million, which breaks down as £70 for every customer.

John McFall MP, chairman of the Treasury Select Committee has written to the chief executives of the leading credit card issuers, Barclays, HBOS, Lloyds TSB, MBNA, Nationwide and Royal Bank of Scotland, to warn them that he is unhappy with the lack of progress on issues such as a standardised method of calculating credit card charges, which would give consumers the information to make proper comparisons.

'The Committee recognises that there has been progress on some of these issues but in other areas we are concerned that the industry's response so far has been inadequate,' says McFall’s letter.

'It seems that progress in some key areas (which we accept are technically complex) raised by the report, in particular displaying the cost of borrowing scenarios, and more transparency and possible standardisation regarding the way interest charges are calculated, is slow.'

He goes on to suggest that the credit card bosses are deliberately going slow on these issues, looking for ways to continue to make credit card comparisons difficult. 'I hope there is no question of some in the industry seeking to create obfuscation around these issues, rather than to seek genuine solutions which will benefit consumers and the image of the industry,' he says.

Credit card business is highly profitable for the high street banks. Barclays Bank, for example which charges between 11.9% and 28% for credit, has some 9 million customers in the UK and 2 million abroad, and is thought to be the most profitable credit card operation in the country.

Consumers total outstanding credit card debt is currently £52 billion, of which £30 billion is accumulated interest charges. Nearly eight out of ten people have never changed their credit cards and two thirds of them have no idea what interest rate they are paying.

In December of last year the Treasury Select Committee published its findings on the credit card industry after taking oral evidence from credit card chief executives, and came up with a number of recommendations, including clearer information for consumers displayed in a summary box and on monthly statements, standardisation of methods of calculating APRs, standardisation of the way interest charges are calculated, and more information on the revenue raised from transaction and penalty fees.

McFall wants a monthly meeting with credit card chiefs to ensure that momentum towards the proposed reforms is maintained. 'The drive for improvement needs to come from the top of the industry,' he says, warning that the chief executives will be recalled if the committee is not happy with the progress made.

When the committee's report was published on 17 December of last year, McFall said, 'consumers have been badly let down by credit and store card companies. During December, the Christmas period, £13 billion is expected to be spent on credit cards. Consumers are good for the industry, but the favour is not returned.'

McFall said that the committee was 'astonished' that the APR, required to be given on marketing material and the main item of comparative information for the user, is being calculated in more than one way, and that regulatory authorities have not resolved the problem despite knowing about it for some years.