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28 October 2004



Local 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.

The most controversial issues were the interest they charge and their penalties for late payment and going over the card limit.

“I welcome the fact you have now agreed a standard way of calculating the Annual Percentage Rate of interest (APR) but it’s deceptive isn’t 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.”

The 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:

“How can people choose which card is competitive when you don’t 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 ‘it’s a fair cop guv: we promise to go straight from now on’. If you won’t do that voluntarily the regulator will have to step in to stop the deception.”

Similar 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 Committee’s hearings.

Speaking afterwards Mr. Beard said:

“If 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 won’t let it and neither will the press judging by this response to our hearing.”


Enclosed: ‘TIMES’ leading article, Wednesday 27th October 2004

Copyright 2004 Times Newspapers Limited
The Times (London)

October 27, 2004, Wednesday

SECTION: Home news; 1
LENGTH: 786 words
HEADLINE: Banks make millions from 'unfair' credit card charges
BYLINE: Joe Morgan

The big banks have been accused of using bogus accounting practices to cheat millions of credit card customers with late payment and other penalty charges.

The 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.

They believe that many of the charges may be in breach of consumer contract law.

Banks are likely to have to slash the charges or face prosecution.

Until 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.

However, 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.

There 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.

Mike 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?"

The 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.

Mr 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.

Legal experts say that under consumer law banks are able to charge customers penalty fees that reflect the cost of the unauthorised borrowing only.

Mr 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."

A 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.

MPs 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.

HSBC 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.

Banks 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.

Sir 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.

Legal 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.

Richard 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.

He 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 unauthorised borrowing."

A report by PricewaterhouseCoopers, the accountancy firm, concluded that poorer borrowers with small credit limits were most likely to be punished by penalty charges.

Leading article, page 19


Over limit and late payment fees

Capital One.....Pounds20
Lloyds TSB......Pounds20

LOAD-DATE: October 27, 2004

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