Credit card users 'are ripped off'

IF you think you have found the best credit card deal available, you might have to think again. Despite apparently low interest rates, many customers end up paying extortionate and complex charges which baffle even leading mathematicians.

Consumer watchdogs and MPs have expressed surprise and alarm at the intricacies which make it impossible for the public to weigh up how much their cards are costing. It all means that UK consumers are paying as much as £2bn a year over the odds in interest charges because it has become virtually impossible to identify the best-value providers.

One reason is that each credit card generally has three interest rates; one which applies to purchases, a second for cash withdrawals and a third for debts transferred from other cards. But on top of that, banks have widely differing policies on at what point interest is first charged and for how many days it is imposed.

The result, according to the Consumers' Association, is that charges can differ by as much as 73% on cards which appear to have the same annual percentage rate (APR) of interest. It says that problems have now reached crisis point and MPs on the Government's Treasury Select Committee, which is investigating bank rip-offs, agree.

The CA, which has presented evidence to the committee, is calling for new rules to be included in the industry's Banking Code, which would set standard rules on interest charges. Banks would also have to make clear to customers that if they only partially clear their outstanding balance each month, they are charged interest on the full amount.

Ashleye Sharpe, head of money research at the CA's Which? magazine, said: 'The current system is hideously complicated. The simple fact is that the card providers do not explain properly how they calculate their interest rate charges.

'We all know very well that banks do make mistakes, but consumers are not even given the information on their bills to allow them to make sure the charges are fair and accurate. Some cards charge from the date of a purchase, while others start imposing interest from the day details reach the card account. Some cards charge interest up to the date the bill is issued, while others link charges to the date the bill is cleared, which can be an extra two weeks.'

These anomalies mean that the number of days when interest is charged can vary from 45 to 59, bringing huge differences in charges, on cards which have an identical APR.

Ms Sharpe added: 'We would like to see agreement among banks on a standard way of calculating interest. Only then can consumers make a reasoned choice.'

Leading mathematician Dr Robert Hunt, deputy director of Cambridge University's Isaac Newton Institute, said his own attempts to get to the bottom of the interest-rate equation demonstrated the difficulties. He said the differing interest rates on purchases, cash withdrawals and balance transfers were a minefield for the ordinary consumer.

'The layman has absolutely no chance whatsoever of working out whether the interest rate charges are accurate based on the information included on bills,' he said. 'Doing even a standard calculation took me for ever. 'But to make a comparison between cards you would need to make all sorts of assumptions about how the cards would be used.'

Even bosses at two of the biggest banks, the Abbey National and HBOS, owners of the Halifax and Bank of Scotland, have admitted that consumers have little chance of deciphering the charges.

Ian Harley, chief executive of the Abbey, said the complexity was not surprising given that there are no standard rules on when interest should be applied. At the same time the HBOS chief, James Crosby, who was giving evidence to the Treasury Committee, said: 'I think we should be much clearer about the interest-free period.'

Labour MP James Plaskitt, a member of the committee, said: 'The banks are very good at paying lip service to transparency, but when it comes to delivering financial services there is very little actual transparency.'

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