Credit card firms 'rip off £400million a year with small-print jargon'

The watchdog warned that small-print jargon and unfair charges mean many people pay more than necessary for their cards.

Today it unveils a regime created to steer people away from rip-off cards.

It will set up a price comparison website, an "honesty box" on statements and marketing material to spell out rates and fees, and a ban on complex small print.

On the website, consumers will feed details of their spending and payment habits into an online calculator and it will identify the best value card.

The OFT says all firms should use the same terminology to describe charges and conditions - rather than the current confusing mix.

It says almost 70 per cent of people do not shop around for the best value credit card and many card companies make it impossible for consumers to hunt out the best deals.

As a result, consumers who opt for a card charging a typical interest rate rather than the best-value option are losing an average of £137 a year, making an extra £400million for card firms.

There are concerns that the industry's failure to come clean on rates and fees is fuelling an increase in credit card debt, which now tops £66billion.

In its report today it states: "Most consumers are not choosing effectively between credit card products.

"If consumers did shop around for a card, they could make substantial savings."

It said the Financial Services Authority had warned that "providers of financial products may gain from the lack of price transparency about their products", adding: "It may be in the provider's interest to increase the complexity of the product charges."

The OFT criticised "opaque pricing" and said: "Providers can add to the problem knowing that consumers cannot process complex information.

"They can create 'noise' by increasing the quantity and complexity of information which makes it difficult for consumers to see the real price."

The OFT says the problems with credit cards are potentially serious because of the risk of getting into debt.

Chief executive John Fingleton said: "No one wants to throw money away but consumers who don't shop around for cards are doing just that."

The OFT plan follows an inquiry triggered by the consumer group Which? It claims the OFT has not done enough to stop people being duped.

Which? says people are losing out because card giants use small-print jargon to disguise 12 ways to calculate the interest on transactions.

Most people use the APR interest rate to find what they believe is the cheapest card. But there can be a 40 per cent difference in charges between two cards with the same APR.

The main method used to increase the burden on customers is to have fewer interest-free days each month.

The OFT has stopped short of forcing banks to use standard terms to set APR.

Which? chief executive Peter Vicary-Smith said: "There's no way to make comparing credit cards as easy as it should be unless you standardise the way interest rates are calculated.

"The OFT has missed the chance to insist people are given a way to compare cards they can actually understand."