Letter from the Chairman of the Office
of Fair Trading to the Committee
TREASURY COMMITTEE INVESTIGATION INTO THE
TRANSPARENCY OF CREDIT CARD CHARGES
Thank you for your letter of 15 September seeking
our views on three points relevant to your Committee's investigation.
This letter deals with them in the order raised in your letter.
CALCULATION OF
APR
The Consumer Credit Advertisements Regulations,
which come into force on 31 October, provide a new method for
the calculation of APR to be used in advertising for running account
credit. I can confirm that the interpretation and application
of this method is agreed by DTI and OFT and that guidance to business
which sets out clearly this common interpretation will be available
very shortly. This follows much hard work on the part of both
OFT and DTI to ensure that guidance on all aspects of the new
Regulations—not simply the calculation of APR—is available
in advance of the Regulations coming into effect. In drafting
the guidance OFT has sought views of key interested parties to
help ensure that the guidance is comprehensive, clear and unambiguous,
and meets fully the needs of those businesses which have to comply.
CALCULATION ON
INTEREST
The OFT's view on the standardisation of interest
charging methods was, as you indicate, set out in my letter of
7 October 2003 and our formal response of 20 February 2004. That
position is unchanged. In short, we believe that it would be in
the consumer interest, while preserving commercial freedom, for
there to be a standard charging method that applies except where
a provider prominently states that it is employing a different
method. We have no formal power to require such an approach but
we have been discussing it with the industry.
Since February OFT officials have had further
discussions with APACS and that process continues. We welcome
the steps which APACS has taken and is continuing to take in respect
of greater transparency of information on this—and other—key
elements of cost information. We believe, moreover, that a standard
on charging methods developed by the industry but which is not
mandatory would be useful as it would assist consumers in comparing
products. It would not, in our view, reduce the ability of companies
to compete but would give consumers a better basis to compare
and evaluate products.
APACS does not take the same view as us on this
matter, believing that the use of a standard is practically difficult
and could have adverse effects by reducing choice and competition.
Our dialogue with APACS continues. Of course this is a matter
on which your Committee may well have views.
DEFAULT CHARGES
Turning to default charges, we have obtained
information from card issuers on default charges revenue and costs
incurred as a result of default. We have found that different
card issuers use different accounting policies and bases for charging,
some of which, on our preliminary analysis, are of questionable
validity under the regulations on unfair terms in consumer contracts.
We have now begun a series of meetings with major card issuers.
In some cases we have made requests for more information. Besides
clarifying the facts, we are considering points of law. We will
report again to you once this investigation is concluded. The
constraints on information disclosure set out in the Enterprise
Act prevent me from giving more detail at this point, but I hope
this gives the broad picture.
I hope that the above information is helpful.
I and my colleagues are of course happy to answer any further
questions either through correspondence or at a meeting.
4 October 2004
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