Mar 16 2004
Consumers find financial information relating to credit cards difficult to understand, new research by the OFT has shown. Over three-quarters of credit cardholders do not know what Annual Percentage Rate (APR) applies to their card, despite being aware that this is the key piece of comparative cost information. Consumers welcome proposals to introduce a simple summary box containing essential credit cost data.

The research involved interviews with a representative sample of 1890 consumers. Based on the responses, the survey found that over 70 per cent of people surveyed have at least one credit card, with 37 per cent of cardholders having two or more credit cards. While 60 per cent of cardholders felt they had a good or fair understanding of credit cards, they couldn't generally answer specific questions or extract key information ( e.g. about the APR and fees for late payment or cash withdrawal.

The OFT commissioned the research to establish consumers' understanding of the key financial terms and conditions of credit card agreements; to explore how consumers make choices about cards; and to investigate how understanding and choice might be improved through the clearer provision and presentation of information.

The research findings, which are being published, have informed the OFT's response to Government proposals for reform of consumer credit legislation, especially on how to improve information to borrowers and transparency in the credit market.

Other key findings include:

* 21 per cent of those surveyed who did not pay off the balance in full each month have credit card balances of 1000 or more consumers find it difficult to compare products in terms of cost; brand loyalty is an important factor, with many consumers simply taking cards from their own bank

* key financial information must be displayed prominently and separately from the general terms and conditions of agreement if consumers are to use it effectively

* consumers like the concept of a simple summary box, containing the APR charged, details of any additional charges, the interest rate, the minimum payment to be made, the interest free period, the period over which interest is charged and the credit limit.

John Vickers, OFT Chairman, said:

'Consumers need key information presented in a way that is easy to understand to make good choices about credit cards. Our research provides consumer evidence on how to do this.'