Stumped by smallprint: credit card agreements are gobbledegook with calls for rules revamp2 min read
New research finds the majority of Brits are baffled by the most basic terms of their credit agreements, like how much interest they’ll be charged.
To protect consumers from being hoodwinked by credit providers, the Consumer Credit Act prescribes the information a company must give consumers before they sign a credit agreement. But these rules leave consumers lost in legalese, with just 2 in 5 consumers able to answer the most basic questions about a credit card they have just applied for.
The data comes from a new report by Fairer Finance, the independent consumer group, and commissioned by Klarna, the global payments and shopping service. To test the effectiveness of the current rules, Fairer Finance asked a nationally representative group of 30 people who either owned or were considering taking out a credit card to complete a mock online credit card application, which fully complied with current regulations. They then tested the group’s comprehension of the key terms of the credit card with a series of questions and conducted focus groups to draw out further insights.
The findings were startling. On average, just 2 in 5 participants could correctly answer the basic understanding questions. Not a single participant was able to answer the most difficult question (‘what is the fee for withdrawing cash overseas?’), while even the easiest question (‘does this credit card charge an annual fee?’) was answered correctly by just two-thirds of respondents.
A worrying number of participants failed to identify various fees associated with the credit card. 37% of participants either weren’t aware of the 2.9% balance transfer fee or thought there was no fee. 60% either weren’t aware of the 3% cash transaction fee or thought there was no fee. With a £1,000 balance transfer and £20 cash withdrawal, these fees would add up to £32.
Only 43% were able to identify the correct APR. This is an especially important number to keep track of, since if a borrower had…
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