CARD COMPANIES/BANKS MUST MAKE CLEAR THEIR CHARGES AND THE REASONS
FOR THEM. NO MORE PROFITS BY DECEPTION
MP Nigel Beard was in the news again this week when the Chief
Executives of the major banks (Barclays, Royal Bank of Scotland, HSBC
and MBNA) appeared before the Treasury Select Committee to answer
questions on their credit cards.
most controversial issues were the interest they charge and their
penalties for late payment and going over the card limit.
welcome the fact you have now agreed a standard way of calculating
the Annual Percentage Rate of interest (APR) but its deceptive
isnt it said Mr. Beard. People would assume that
two cards offering the same APR would have the same interest charge,
but that would be wrong. There are nine different ways of calculating
the interest charge and no card makes it clear which
method is being used. For example, with the same Annual Percentage
Rate of interest and identical sets of transactions, the interest
charged by MBNA would be at least 50% more than for HSBC which would
be slightly lower than Barclaycard.
bank bosses defended themselves by saying they would not standardize
the interest calculation because that was how they competed with one
another. To which Mr. Beard replied:
can people choose which card is competitive when you dont tell
them how much interest will be charged and the information they need
to calculate it themselves is either hidden in the obscurity of small
print or not there at all. You are profiting by deception and we want
you to remove the obscurity you seem addicted to and make the charges
clear to customers. Rather than making weak excuses you should be
saying its a fair cop guv: we promise to go straight from
now on. If you wont do that voluntarily the regulator
will have to step in to stop the deception.
exchanges occurred with other committee members on the penalty
charges of the card companies whose legal validity is now being
examined as a result of the Committees hearings.
afterwards Mr. Beard said:
the Banks and Credit Card companies are to retain public trust in
the essential services they offer, they need to adopt the business
methods of the Twenty First Century. That means putting the customer
first and being clear and open about the scale of their charges and
the reason for them. This issue will not go away. The House of
Commons Treasury Committee wont let it and neither will the
press judging by this response to our hearing.
TIMES leading article, Wednesday 27th October 2004
2004 Times Newspapers Limited
27, 2004, Wednesday
Home news; 1
Banks make millions from 'unfair' credit card charges
banks have been accused of using bogus accounting practices to cheat
millions of credit card customers with late payment and other penalty charges.
Office of Fair Trading has written to all the main credit-card
issuers asking them to explain how they calculate fees for customers
who exceed their credit limit or pay late.
believe that many of the charges may be in breach of consumer
are likely to have to slash the charges or face prosecution.
now banks have stubbornly refused to reveal how much money is made on
"late-payment" and "over-limit" credit card fees,
despite repeated demands from consumer groups and the Commons
Treasury Select Committee.
Barclaycard, the leading credit card company, which made profits of
£722 million last year, reported that 43 per cent of its
operating income was generated from fees and charges.
is growing anger among consumers at set penalty charges which are out
of proportion to the sum owed. Those who forget or fail to pay the
fixed minimum monthly percentage, often as little as £5, have
ended up with charges of £20.
Naylor, principal researcher at Which?, formerly known as the
Consumers' Association, said: "These charges are punitive and do
not reflect the costs incurred by the company. Credit card companies
are making huge profits from these extremely high charges. Is it any
coincidence that most fees are between £20 and £25?"
Treasury said last night that it had long supported moves to increase
transparency and simplicity. John McFall, chairman of the Treasury
Select Committee, said that credit card companies had to prove that
they had nothing to hide over the charges.
McFall produced a letter that he had received from John Vickers,
Director-General of the Office of Fair Trading, in which he questions
the veracity of methods used by card companies to calculate such charges.
experts say that under consumer law banks are able to charge
customers penalty fees that reflect the cost of the unauthorised
Vickers's letter stated: "We have found that different card
issuers use different accounting policies and bases for charging,
some of which, on our preliminary analysis, are of questionable
validity under the regulations on unfair terms in consumer contracts."
spokesman for the OFT said it expected the banks to reduce default
charges automatically if it found them to be excessive. He added that
banks may also have to give consumers clearer information about how
the fees are levied.
highlighted how the size of the fees varied between card issuers
Nationwide charges a late payment fee of £15 while MBNA charges
£25 -and repeated their demand for the committee to be told how
much profit they made on the fees.
was the only card issuer prepared to give an indication of fee-based
profits, which industry experts say are worth millions of pounds.
"We have shown that 0.2 per cent of our personal banking profits
comes from default charges. It is minuscule," Michael Geoghegan,
chief executive of HSBC, said.
were asked if a £25 penalty, levied on a borrower who repaid his
or her credit card bill five days late, reflected the costs that the
card issuer incurred.
Fred Goodwin, chief executive of the Royal Bank of Scotland, said the
fees could not be looked at individually and argued that they
reflected the annual debt collection costs of pursuing customers who
fall into default.
experts say that the charges are unlikely to be enforced by the
courts because penalty clauses are legally void unless they reflect
the loss that the party enforcing them has suffered.
Colbey, a barrister from Lamb Chambers, said that the banks'
willingness to waive card penalty fees as a "goodwill
gesture" and their failure to bring a test case through the
courts against a debtor who refused to pay the charges were evidence
that the fees were unjustifiable.
said: "Credit card penalty charges are legally unenforce-able
because they seek to punish the borrower rather than compensate the
bank for any losses that they have suffered as a result of the
report by PricewaterhouseCoopers, the accountancy firm, concluded
that poorer borrowers with small credit limits were most likely to be
punished by penalty charges.
article, page 19
limit and late payment fees
October 27, 2004