Credit card interest calculations confusing customers

The variety of ways in which credit card companies have started working out the interest that is charged on credit cards is confusing many UK consumers as well as helping the card companies to net even more interest. Some consumer groups feel that credit card companies have been trying to find ways of recouping lost revenue that resulted from financial regulators placing ceiling limits on penalty fees since last year, and that baffling consumers with a range of ways in which interest is calculated is one of those methods.

Which?, the UK consumer group, has now demanded that an investigation be carried out into the different ways in which these card companies calculate interest, claiming that around twelve different methods are currently being used by credit card companies, including the top twenty credit card companies, which is resulting in mass confusion for customers and is benefiting the card companies by helping them to raise their profits. These different methods mean that many consumers may not end up with the best value credit card for their needs, as they are often unaware or confused about just how the interest is worked out.

According to officials from Which? consumers cannot effectively search for the ideal credit card based upon the APR charged simply because the way that these credit card companies are working out the interest makes comparing APRs to find the best credit cards ineffectively and a waste of time. Credit card companies are using a variety of different factors in order to determine how to calculate the interest on each account. According to one official from the consumer group: "People believe that APRs are a dependable way of comparing credit cards, but our research shows that APR cannot to be relied upon for true credit card comparisons."

Tom Smith
6th May 2007