Nationwide calls for ban on unfair credit cards

The Consumer Credit Bill goes before the House of Commons Committee today with Nationwide Building Society repeating its call for the government to introduce a number of measures which would enable consumers to get a fairer deal from credit card providers.

Nationwide has called for the bill to outlaw the practice whereby card providers allocate partial payments to balances at the lowest rate of interest, leaving higher-interest items such as purchases and cash advances to continue accruing interest at significantly higher rates.

Nationwide would also like to see credit card providers which issue 'convenience' cheques including a clear and transparent 'health warning' that covers interest rates, order of payments and consumer protection.

It is also calling for lenders who advertise typical rates or use risk-based pricing to obtain the explicit agreement of the consumer to the rate they are actually being offered before proceeding with the application.

And it would like the bill to tackle the barriers to data sharing to encourage responsible lending, so that lenders are incentivised to treat customers fairly and lend prudently.

Labour MP Anne Snelgrove, who sits on the Committee reviewing the bill, said in the House of Commons, ‘the unfair order of payment on credit cards is a problem in my constituency and many others. Constituents with 0% credit cards do not know that the cheapest debt is paid off first. They can therefore rack up extra debts without realising it. That has led to credit card providers making an estimated £500 million extra profit a year.'

Liberal Democrat Shadow DTI Secretary Norman Lamb MP echoed her concerns on orders of payment, saying, 'some consumers do not understand that they are paying off the 0% debt that they have carried over from another credit card rather than subsequent purchases, which are subject to a rate of interest.'

On the subject of convenience cheques, Conservative spokesman Charles Hendry MP said: ‘What is not made clear to customers is that spending on those cheques is usually at a higher rate of interest than that charged for normal use of the card, with a shorter interest-free period or none at all.'

Commenting on the bill Stuart Bernau, Nationwide's executive director, said: ‘We support the broad thrust of the bill, but at present it just does not go far enough. The government has a good opportunity here to tackle bad practice and make a real difference for consumers. It would be a great shame if this opportunity were missed.’

‘Some practices, like applying payments to the cheapest debt first, remain unfair and can only be to the detriment of the consumer. Any debt counsellor worth their salt would tell you to pay off your most expensive debt first, so why should credit card providers be allowed to ignore this principle?’

Which? the consumer group has campaigned too for all credit card issuers to use the same formula for calculating interest charges and APRs, but so far the government has refused to standardise these calculations. This is probably the biggest single area of concern over credit cards.

Nationwide, which has a very competitive credit card, is the only major provider to apply payments to the most expensive debt first across all its credit cards. Nationwide does not send out 'convenience' cheques to encourage customers to increase their credit balances without explaining the true cost.

Nationwide’s card is also one of the few which does not levy a foreign usage charge which can be as high as 2.75% on all transactions carried out abroad.