Hidden cost of credit cards revealed by Which?

Credit card companies are boosting profits through "dubious" sales practices and "unjustifiably" high charges, Which? has reported.

10:17 06 January 2005

Credit card companies are boosting profits through "dubious" sales practices and "unjustifiably" high charges, Which? has reported.

The consumer watchdog has calculated that credit card companies make over 400 million a year charging customers who pay bills late or exceed credit limits, with one in four people charged at least once in the last year for either of these.

Most card companies charge 20 to 25 for these slip ups - above the cost of dealing with late or missed payments, as letters are generated automatically and penalty charges are simply added on to the next bill.

Which? also found that 42 per cent of its members had had their credit limit increased without requesting it, with the people most in debt those most likely to receive extra.

Malcolm Coles, editor of Which?, said: "The credit industry has an alarming number of tricks up its sleeve to wring every last penny it can out of its customers.

"Lenders seem to have no qualms about persuading people to take on more debt than they can afford and they'll carry on doing it as long as they can get away with it."

Which? also highlighted the problems caused by different credit card companies calculating interest in different ways.

The watchdog pointed out that while the RBS Platinum credit card and the Co-op Advantage card both have stated interest rates of 15.9 per cent, a consumer who spent and paid exactly the same amount over a year would be charged more interest by the RBS card.

Senior policy adviser at Which? Laurence Baxter explained: "In the 18 months since we called for standardisation of how credit cards calculate interest, all we've heard from the industry is why it shouldn't happen.

"It argues that standardisation would stifle competition. In fact the reverse is true, standardisation would allow people to compare cards by looking at interest rates, and this can only be good for competition."

Which? also attacked firms for issuing credit card cheques.

Close to half of Which? members said that they had been sent credit card cheques in the last year, with those who owe greater amounts more likely to receive them.

In theory credit card cheques allow a cardholder to more easily make a payment to an individual, and to post-date a payment. But there are disadvantages as well.

Which? points out that while many cards do not charge interest for more than a month after a purchase, this rule is often waived when cheques are used.

Goods bought by credit card cheque are normally charged interest from the moment the purchase is made, along with a two per cent handling charge, regardless of whether the bill is paid in full or not, Which? has cautioned.

"This is yet another example of the credit industry encouraging us to spend more than we can afford. We want unsolicited credit card cheques to be banned," the consumer group said.