OFT 'missing the point' of complaint over credit card interest

Published on Sunday 1 July 2007 00:51

CONSUMER group Which? has accused the Office of Fair Trading of missing the point in its response to its super-complaint about the different ways that card providers levy interest on customers.

Instead of forcing card companies to standardise the way they calculate interest, the OFT has decided to spend six months working with card issuers to increase consumer understanding of credit cards, including how interest is applied.

Peter Vicary-Smith, chief executive of Which?, said: "We presented the OFT with a simple problem - that multiple interest calculation methods were preventing consumers from picking the best credit card - and instead of tackling this head on it has chosen to do a wider review.

"While this is a positive step, why not take the bull by the horns and address this super-complaint first? We can only be sceptical about the OFT's proposed negotiation plans with the industry. With no legal threat and no ambitious goals, what can the OFT expect to achieve?"

The OFT also came under fire from a financial comparison website, which pointed out that a loophole in an earlier OFT decision, to limit penalty charges on credit cards to 12, meant that card users are still being overcharged by 38m a year.

Moneysupermarket.com said that if a card user does not clear their card balance in full in the month after a late fee has been applied, interest will begin clocking up on the penalty charge.

Abbey offers 8%

ABBEY will launch a current account offering an in-credit interest rate of 8% tomorrow.

To qualify for Abbey's table-topping rate of interest, customers have to pay at least 1,000 into the account each month.

Customers swapping to Abbey's account from one of the big four high-street banks will gain around 40 in interest payment in the first year, according to comparison website uSwitch.

However, uSwitch said it was concerned that Abbey seemed to be placing the needs of new customers ahead of those who already held an account with the bank, and also that the high interest rate will vanish after 12 months.

Personal finance expert Mike Naylor said: "The main drawback to this account is the fact it's a one-year offer. The interest earned in the first year is high, but this would drop considerably when the account defaults to an in-credit rate of just 2.5% AER in month 13.

"During the second year, consumers will earn just 12.50, which is a drop of 5.5% AER."

300m rebate win

INVESTMENT trust companies have won a 300m tax rebate following a judgment in the European Court of Justice that the management expenses of investment trusts should be exempt from VAT.

The Association of Investment Companies and JPMorgan Claverhouse launched the legal action against the UK government in January 2004. It is believed the decision will save trusts around 40m a year, with back tax mounting to 300m.

The companies can pay out the money as a dividend or reinvest it, boosting their balance sheets and share prices.

Bonds exodus

FIGURES released by the Investment Management Association have revealed that private investors are leaving corporate bond funds in droves.

The UK corporate bond sector saw more investors cash out their funds than any other sector, with net outflows of 134m in May, and one performance monitoring group believes investors are absolutely right to be dumping these funds.

Moneyspider pointed out that investors in the poorest performing corporate bond funds, which it identified as being run by Nationwide Building Society, HSBC and Virgin Money, would have got better returns in a savings account.

It claimed 5,000 invested in the above providers' funds will have grown by 849, 849 and 600 respectively in the last five years. This is at least 100 less than the 950 investors would have received had they instead put their money in a Halifax's Web Saver account for the same length of time.

New chief at SBS

THE Scottish Building Society, which has more than 100 offices throughout Scotland, has appointed a new chief executive.

Gerry Kay, currently chief executive at Scottish Legal Life in Glasgow and a member of the Institute of Chartered Accountants of Scotland, will take the helm of the Scottish mutual provider at the start of October.

Chairman David Chalmers said: "We are fortunate to be recruiting such an experienced chief executive with a background in the mutual sector. The Society looks forward to continuing to grow and develop, and to delivering increasing benefits to its members under Gerry's leadership."