Credit Cards Criticised For Being Too Complicated
A report issued by the Office of Fair Trading (OFT) has criticised credit card companies for making their products far too difficult to compare with each other. It has therefore been recommended that the Financial Services Authority (FSA) launches a credit card comparison website in order to help consumers get a better credit card deal.
The report into credit card comparisons follows a complaint last year from the consumer group 'Which?' about the way various card issuers were calculating interest payments. The OFT discovered that some 70% of credit card holders do not shop around when applying for a credit card and simply select a card without fully understanding all of its features.
John Fingleton, chief executive of the OFT said, "No one wants to throw money away but consumers who don't shop around are doing just that."
He added, "It is essential that consumers are given the right tools to make comparisons between credit cards more easily and we can achieve this through some of the recommendations which have received widespread support."
The main recommendations are:
- Improved presentation of credit card issuer's summary boxes.
- Standard terminology in credit card product literature.
- Improved consumer education about the benefits of shopping around.
The consumers' association Which? requested investigations by the OFT last year in April after it discovered major card issuers were using over 12 different methods to work out their interest charges. It also called for research into the comparative costs of using different credit cards for purchases, cash advances, introductory offers and payment allocation.
Credit cards offering a low APR were seen to be more expensive in the long run than those with a higher APR. Therefore using the APR as a comparison tool was a misleading way for customers to establish overall credit card costs.
The OFT also examined introductory offers and the different policies credit card companies use when deciding what order purchased items are paid off on a credit card bill. The report concluded that not only were credit cards proving an expensive way to borrow cash, but they were also very complicated.
Jeremy Wood, director for banking and credit cards at Nationwide said, "For too long many credit card providers have got away with applying an adverse order of payments to their customers and we hope this new comparison site will address this sharp practice."
The announcement by the OFT to set up a comparison website was openly welcomed by the Association of Payment Clearing Services. APACS claimed it would be of great help to consumers by allowing them to make informed choices when applying for a credit card.
Sandra Quinn, Director of Communications at APACS commented, "We are backing the OFT in hoping that these proposals will spur customers on to make better decisions by building upon the work already undertaken by the industry to make credit card products more transparent."
In addition, MP Nigel Griffiths has complained to the FSA about the recent decision made by credit card company Egg to cancel the account of 161,000 customers. This complaint is now being taken into consideration by the OFT. An inquiry has yet to be confirmed.
Published on February 13, 2008
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