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Following up our earlier report
On 10 December 2003 we published an important report which confirmed major concerns about a lack of transparency in the credit card market and noting dubious marketing practices. We identified areas in which progress could be made in establishing a fairer deal for consumers and challenged the industry to respond.
We indicated that we would be returning to the subject to review progress. Accordingly, we took evidence from the chief executives of the seven largest credit card issuers in the UK (Barclays, Capital One, HBOS, HSBC, Lloyds TSB, MBNA, RBS). This report reviews our assessment of the progress made.
Progress made since the earlier report
We have been pleased to note a positive response from the industry on a number of points, particularly in relation to improving clarity. We welcome in particular:
the introduction of the Summary Box on promotional material
the introduction of a standardised warning against making only minimum repayments
the introduction of a single method of calculation for Annualised Percentage Rates (APRs)
the recent actions taken by both the DTI and the OFT in the area of credit and store cards charges and marketing, hoping that this reflects the higher level of priority required for these issues that we called for in our earlier report.
But more still needs to be done
Some companies appear alive to the importance of the issue. Others are moving more slowly. The industry as a whole has further to go if the goal is to be achieved of ensuring that customers can understand clearly what they are being charged for in their use of their credit cards and, for some, avoid arriving almost unknowingly at a point where they have built up dangerous levels of personal debts.
The report sets out a number of areas in which further progress is needed to protect consumers from opaque and potentially misleading information.
Key areas in which further progress is needed
Better summary boxes The format and placing of the summary box needs to be improved to make it clearer for consumers: there should be a minimum font size, with scenarios clearly showing the consequence of making the minimum repayment for prolonged periods, and the summary box should appear on monthly statements.
Clearer interest calculation methods Opaque and technical interest calculation methods mean that, even with the APR, consumers find it virtually impossible to work out which card would be the cheapest; this is highly unsatisfactory, and the industry must work with consumer groups to help make things crystal clear for consumers, if necessary through some element of standardisation.
Reasonable penalty charges Conclusion of the OFT investigation into penalty charges should involve the publication of sufficient information about the basis of charges to ensure that consumers can have confidence that they are reasonable and not punitive.
Comprehensive data sharing The current system of data sharing is inadequate and contributes to cases of over-commitment: lenders need to share full information regarding credit card accounts and to assess ability to repay using full credit data and an examination of the customer's full credit commitments in relation to income; government and industry need to work together to tackle the legislative barriers to improved sharing of 'historic data'.
No unsolicited issuing of credit card cheques In future, only customers should activate the issuing of these cheques.
Appropriate Payment Protection Insurance There are serious concerns about the marketing of Payment Protection Insurance, which need to be investigated by the FSA.
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