Credit card companies have agreed to change the way they advertise introductory interest rates following action from the Office of Fair Trading (OFT).

The companies have said they will no longer describe such rates as APRs (annual percentage rates).

Many card issuers offer lower interest rates for a limited period to people with new credit cards, or those switching a balance from another credit card company.

But the OFT said to describe these offers as 'APRs' breached consumer law and misled consumers.

No temporary measures

With consumers racking up more and more debt on plastic, the credit card market has become increasingly competitive.

As a result, credit card issuers have increasingly tried to attract business by offering cheap introductory rates for new customers.

The OFT cited examples such as '0% APR on balance transfers for six months' or '3% APR fixed until 1 July 2002.'

Under consumer credit law, the APR should measure the overall charge for credit, including interest and other charges over the lifetime of an agreement.

As a result, the OFT said a temporary interest rate cannot be called an APR.

Marketing makeover

One area where the ruling is likely to have a major impact is on credit card advertising.

Under current rules, the APR figure must be the most prominent figure in any advert.

Many adverts have given most space over to the introductory offer, but now this looks set to change.

Competition fears

The Finance and Leasing Association criticised the OFT's action, saying it would make it harder for consumers to compare rates.

It said some card providers would show the APR paid when the introductory offer ran out, while others would use a "blended rate" which included both the initial offer and the standard the rate.

"In the longer run the OFT may make it not worth the candle for lenders to offer zero introductory rates and consumers would lose out and new entrants would find it harder to enter the market place," said the FLA's director general Martin Hall.

The OFT said it was currently in discussion with the credit card industry and the Department of Trade & Industry on agreeing the best way of calculating APR.

Reform on the way?

Earlier this week, the government said the way credit card APRs were presented was confusing and needed to change.

"With the multitude of credit offers today, consumers need to be able to compare different products with ease to decide on the best deal for them," said Consumer Minister Melanie Johnson.

"Currently, APRs quoted for credit cards are confusing and do not allow consumers to compare products like for like. This needs to change."