Credit card and loan providers more transparent

Credit card and loan providers are set to be asked to be more transparent about the way they calculate the interest rates they charge consumers, as part of an Office of Fair Trading (OFT) review of their practices.
The OFT’s intentions were initially announced as part of the Pre-Budget report last year, when the Chancellor called for a plan to tackle anti-competitive behaviour – largely in response to the raft of mergers caused by the banking crisis.
One of the key areas that the OFT will be focussing on now is the role that credit reference agencies play in lenders’ decision making process, and the transparency of their risk-based pricing. The way that banks treat customers experiencing financial difficulty is also under the spotlight once again.
There has been a general tightening of credit scoring criteria since the onset of the credit crunch, but the average cost of credit has also been creeping up. Examples include both Egg and Capital One making massive hikes in their typical APRs in tandem with tightening up of their lending appetites.
Egg attracted criticism for withdrawing the credit facilities of thousands of customers, apparently because of alleged changes in their credit profile. Despite their claims, many of those affected were found to have near-perfect credit ratings.
As the amount of information that lenders are sharing with each other about consumers increases, the OFT is seeking to put together a framework of recommendations that will ensure that consumers understand how their personal information is used, and that they are treated fairly.