MPs criticise banks for lack of transparency in credit card costs

MPs on the Treasury Select Committee attacked the bosses of RBS, Barclays, HSBC and the US credit card giant MBNA yesterday for making it hard for consumers to compare credit cards.

MPs on the Treasury Select Committee attacked the bosses of RBS, Barclays, HSBC and the US credit card giant MBNA yesterday for making it hard for consumers to compare credit cards.

The Labour member Nigel Beard said: "The APR should reflect the cost but it doesn't. The actual cost is hidden in obscurity. No one understands it." Banks use nine different methods of calculating interest on cards, the consumer group Which? says. Charges vary widely even when cards carry the same annual percentage rate (APR) because of introductory offers, differing interest-free periods and other terms.

The banking heads under fire admitted that customers could find the different ways of calculating charges confusing. Sir Fred Goodwin, the chief executive of RBS, said steps had been taken to address the lack of transparency. "There is agreement here that customers could do with understanding this better." Similarly, John Varley, who heads Barclays, said "the industry could do more" to make charges clearer to customers. However, the banks refused to commit themselves to a standard method of working out interest charges, saying that would hamper competitiveness. Mr Beard pointed out that they could only be truly competitive if customers were able to compare their products.

Laurence Baxter, a senior policy adviser at Which?, said: "There finally seems to be general acceptance among lenders that the different rules to calculate interest rates are unfair. The only solution to this grand stealth rip-off is industry-wide standardisation of the way credit card interest is calculated."

Michael Geoghegan, who has recently been installed as the head of HSBC's UK business, and Shane Flynn, the chief executive of MBNA's European business, admitted that it was not fair that consumers face different rules when dealing with different lenders. Confusion over interest charges means that some consumers could get into more debt than they can cope with, MPs said. In one example of irresponsible lending, John McFall, the chairman of the committee, said he had received a letter from someone who had 14 credit cards, all spent to the limit, and faced debts of £150,000. To stop consumers racking up huge debts, Mr McFall encouraged the banks to share data about borrowers.

The committee also criticised the banks for overly penalising customers for late payments, and attacked the issuing of unsolicited credit-card cheques. But Sir Fred rejected the criticism, saying that "every business tries to get the customer to use its products through advertising". The bank bosses defended the cheques as giving customers the opportunity to transfer balances.

But MPs also praised the banks for the progress they had made in providing customers with clearer information. The lenders now publish "summary boxes" setting out terms and conditions in their marketing literature, but the committee called for them to be included in customers' monthly statements.