Credit giants to end interest rip-off

WATCHDOGS have called time on a credit card con that has boosted bank profits by millions of pounds. The Office of Fair Trading ordered 28 companies - most of them household names - to end bogus claims of '0% APR' on debts transferred from other cards.

The practice hides a rip-off in the small print which sees those who fail to pay off the debt within a fixed time hit with massive interest and charges. The interest-free element is normally valid for only a short period before customers are shifted to much higher rates.

Measures announced by the OFT require a fundamental change in the way credit card deals are advertised. In future, the true annual percentage rate of interest (APR) will be given prominence in advertising over any interest-free introductory offers.

The 0% tactic used in glossy advertising is part of an increasingly aggressive marketing strategy used by banks and building societies. The 'spend, spend, spend' culture created by offers of apparently cheap or no interest has helped fuel a personal debt mountain that has grown 126% to £140bn since 1995.

Consumer groups and Sir Howard Davies, boss of the Financial Services Authority, have warned that young people who are encouraged into debt risk financial ruin if interest rates rise or they lose their jobs.

The companies accused of misleading customers include NatWest, the Bank of Scotland, Abbey National, Halifax, Egg, Tesco Personal Finance and Nationwide Building Society.

OFT chief John Vickers threatened to punish the firms by using his new 'stop now' authority unless they agreed to change their ways. These powers, introduced-last year, allow watchdogs such as the OFT to go to court and secure an immediate injunction to stop rogue practices.

Rather than face an embarrassing legal case, the firms have given an undertaking not to repeat the attempt to mislead consumers.

Mr Vickers said: ' Straightforward advertising is vital for consumers and for competition in the credit market. APRs allow consumers to compare deals in a clear and simple way. The OFT is pleased to have secured agreement to stop misleading use of introductory APRs. It shows our new Stop Now powers can achieve positive, swift and proportionate results.'

National Consumer Council chairman Deirdre Hutton welcomed the OFT's move. 'Today's announcement is a welcome and important step along the road towards tougher enforcement of consumer protection laws,' she said.

The full list of companies is: Abbey National, Alliance & Leicester, The Associates, Bank of Scotland, The Boots Company, Capital One Bank (Europe) and Clydesdale Bank, Direct Line Financial Services, Egg (Prudential Banking), Furness Building Society, the Halifax, Hamilton Direct Bank, HFC Bank, HSBC Bank and Liverpool Victoria Friendly Society, Lloyds TSB Bank, MBNA Europe Bank, Morgan Stanley UK Group, National Westminster Bank, Nationwide Building Society, Paramount Bank, People's Bank of Connecticut, Providian National Bank, RBS Advanta, The Royal Bank of Scotland, Sainsbury's Bank, Tesco Personal Finance and the Woolwich.

Barclaycard, the biggest credit card in the UK with eight million holders, was not included in the list facing OFT action.

Its powerful brand and customer loyalty has meant it has not had to resort to the tactic, despite the fact its interest rates - typically 17.9% on balances - are higher than those charged by most new providers.