The Office of Fair Trading (OFT) has announced that it will 'work hard' with credit card providers to make their fees more transparent, after a 'super complaint' from consumer group Which? alleged that companies were being dishonest in the way they advertised their fees to consumers. When advertising their products, most credit card providers use the APR (Annual Percentage Rate), i.e. the amount of interest you pay on the 'credit' that lenders give you. However, the complaint comes following an investigation by Which? that identified six factors, other than APR, that effect the fees a customer pays on their card. However, these factors are not made clear to the customer at the point of purchase and so the public is unable to make a balanced, informed decision as to which card offers them the best deal.
Peter Vicary-Smith, Chief Executive of Which?, criticised the OFT for failing to fully confront the specific problem identified. "We presented the OFT with a simple problem. Instead of tackling this head on it has chosen a wider review." Which? were hoping for the OFT to force credit card companies to adopt a single measure that gives an accurate impression of the fees the cards attract. Alena Kozakova, also speaking for the consumer group, said, "Two people who have two different credit cards with the same APR, and who use their credit cards in the same way, could be paying very different levels of interest." A survey conducted by moneysupermarket.com identified that someone who used an HSBC Mastercard, with an APR of 15.9% paid £58 in fees a year, whereas a Sainsbury's bank Mastercard holder paid £83 in fees, a difference of nearly 20 per cent. It is clear, therefore, that the Sainsbury's customer who chose their card on the basis of the APR could have got a better deal elsewhere. This lack of clarity benefits the credit card industry by a figure as high as £400 million annually, Which? estimates.
The director of communications at APACS, Sandra Quinn, de facto spokesperson for the industry, made the standard argument against regulation. "Like the government, the industry is concerned that such standardisation would restrict or even eliminate consumer choice." She fails to elaborate on how making companies more open about their pricing will have a negative effect on consumer choice.
Last year the OFT enforced a limit on how much credit card companies could charge to customers who were late paying their bill. A common charge of between £20 and £25 was reduced to a maximum of £12. However, companies have been recouping lost profits by adding hidden charges, such as charging interest on late payment of the £12 penalty fee. Many credit card providers are also intending to charge holders of inactive cards a penalty fee. Barclaycard, the country's most popular credit card provider, is considering charging 1 million of its customers between £10 and £20 for low usage of their cards. Customers of Lloyds TSB already face a £35 fee if they don't use their card regularly.
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