Credit Cards Online Information

In a vivid illustration of how competitive the UK credit card market has become, next week NatWest, part of Royal Bank of Scotland, is helicoptering journalists from London to a plush Oxfordshire restaurant for an exclusive briefing on their latest attempt to woo high earners.

But so many card issuers are jostling for their slice of the business that the Treasury select committee was told this week that it was no longer possible without advanced mathematics to calculate interest charges on the cards.

Ian Harley, the beleaguered chief executive of Abbey National, said credit card interest rates could be compared only with the use of calculus. To which an MP on the committee, Andrew Tyrie, said: "You are saying you need assiduous research to find out how much is actually being charged? So how on earth is a customer supposed to do it?"

Since credit cards were launched in Britain 36 years ago, the banks have been unable to resist tinkering with them, and that has intensified with greater competition. Barclaycard was the first, but we now carry 90 million pieces of plastic from 33 issuers of 1,300 card brands. By 1999, a total of pounds 70bn a year was being spent through cards, and that figure has risen since. Of that, the unpaid debt was pounds 29bn.

The industry mouthpiece, the Credit Card Research Group (CCRG), says: "This plethora of credit card choices is a result of a combination of factors including the entry of new players to the market, consumers' growing enthusiasm for plastic payments and the development of co-branded and affinity schemes which have broadened the scope and appeal of cards."

To be heard in such a crowded market issuers have become increasingly ingenious, offering cards with or without annual charges, carrying high or low interest rates, high or low credit limits and the now-ubiquitous special deals for transferring your debts to a new card.

CCRG says: "The entry of American issuers such as HFC, MBNA, People's Bank and Capital One to the UK has led to the recent increase in market competition." The 1974 Consumer Credit Act was supposed to cut through the jungle with a single interest rate calculated to an ordained formula and called the annual percentage rate (APR). But this has been overtaken by the complexities of today's credit cards.

The Consumers' Association (CA) has found the same debt on two credit cards with the same APR can lead to monthly repayments which vary by as much as 40 per cent. Mick McAteer, CA's senior policy adviser, says: "It's a difficult problem which makes a mockery of informed decision-making by consumers."

CCRG explains APR this way: "The annual rate is multiplied by the credit limit to give the total amount that would be owed on the card after 12 months. For example, on a card with a credit limit of pounds 1,000 and an annual rate of 19.5 per cent, the calculation is 1.195 x pounds 1,000 = pounds 1,195.

"For the purposes of the calculation, the fee is deducted from the credit limit to reflect its payment as an `upfront' charge. For example, if a card has a credit limit of pounds 1,000 and an annual fee of pounds 10, the relevant figure for the APR calculation is pounds 990. The figure for the amount owed after 12 months (in the case of the example pounds 1,195) is divided by the credit limit minus the annual fee (pounds 990), to give the APR including the annual fee. In the example being used this would produce an APR of 20.7 per cent, the inclusion of the annual fee having boosted the APR by 1.2 per cent."

Not surprisingly, faced with that, no one likes the present position. Richard Holmes, spokesman for the US card issuer Capital One Services, says: "Clarity of information is absolutely key. And, although people may find it difficult to calculate their exact charges, people do understand the difference between 0 per cent and 12 per cent. It's a complex issue, but we welcome any move that clarifies things for customers." For MBNA, another growing card issuer, John Greaves says: "We are addressing this whole issue. We too want clarity."

But Abbey National's Mr Harley implicitly blamed card issuers for the problem when he added: "If you want to have absolute transparency you have to have standardisation of products."

Matthew Whittaker, CCRG's research analyst, suggests: "Because of the complexities of converting an annual fee into a percentage charge, the monthly rate plus any annual fee is often a more true guide to comparing the costs of borrowing.

# posted by Medical Information : 2:47 AM