Practice remains the same after banking code review

Revenue earned by banks from credit card lending - and interest charges paid by cardholders - will remain largely unchanged by proposed new credit card business practice guidelines which bankers agreed on yesterday.

The new guidelines were released by the Hong Kong Monetary Authority (HKMA), which chaired an industry review of the code of banking practice relating to credit cards.

The review was conducted by an 'Informal Working Group' which consisted of representatives of five banks, namely the Bank of China, the Bank of East Asia, Banque Nationale de Paris, Hang Seng Bank, and HSBC; as well four deposit taking companies - Allied Capital Resources, Lloyds TSB, JCG Holdings, and BOB International Finance.

The group's key recommendation - which awaits formal endorsement by the Hong Kong Association of Banks and the Consumer Council - was that credit card issuers should in future quote an annualised percentage rate of interest (APR) for their products, to allow consumers to easily compare costs of different cards.

A standardised method of calculating the APR was recommended by the working group, which has urged all banks to stick to the set of assumptions it borrowed from a guideline issued by the Office of Fair Trading in Britain.

A key assumption in the model calculation method recommended by the group was a monthly compound interest rate of 2.5 per cent, which translated into an effective APR of 34.5 per cent on a retail purchase, and 36.8 per cent on a cash advance.

'What the working group is proposing, is to adopt the [British] standard definition,' said Simon Topping, executive director (banking policy), at an HKMA briefing held yesterday on the guidelines.