New rules to protect credit-card holders from sky-high interest rates and surprise fees and charges were announced by the banking watchdog yesterday. Annual interest rates will be capped at 60 per cent and banks will no longer be able to make customers pay for unreasonably high legal bills they have run up chasing outstanding debts. The Hong Kong Monetary Authority said the steps, to be introduced within six months, were the result of an inquiry into fears raised by the Consumer Council that card-holders were paying interest rates of up to 86 per cent and agreeing to confusing conditions buried in fine print on bank forms. 'It has become very clear that there is scope for improving the credit-card practices of authorised institutions,' said the authority's executive director of banking policy, Simon Topping. 'This package of measures has been devised with a view to making credit-card terms and conditions more consumer-friendly and ensuring that they are consistent with applicable laws.' Card issuers who make customers liable for legal fees spent chasing a debt will only be allowed to claim a 'reasonable' amount, provided it has been 'reasonably incurred'. The authority suggests banks set a dollar limit or at least keep detailed records of what is spent and how, so customers can appeal if they consider the amount unfair. In July, a High Court judge ruled it 'unconscionable' that card contracts could give banks the power to spend unlimited amounts chasing a debt and then bill the customer. The authority's new rules also mean: Card issuers will have to use the same method to calculate their interest rates, making it easier for customers to compare; Interest rates will be capped at 60 per cent, the rate which applies to money lenders but until now has excluded banks; Card issuers will have to spell out in plain language and readable type the most important terms and conditions of credit, in English and Chinese; Customers' liability for debts run up on a lost card will be capped at $500 provided there is no fraud or negligence involved. Most card-holders are now liable for anything up to their limit, usually tens of thousands; and Supplementary card-holders cannot be held responsible for debts incurred by the primary card-holder. Consumer Council chief executive Pamela Chan Wong Shui last night welcomed the plan, saying it could spur competition between banks by arming customers with greater power to shop around. 'The most important point is whether the information is available to the consumer, whether it's a competitive market and they have a choice,' she said, adding that customers needed to be wary of credit and not get into the situation of using one credit card to pay off another. The council said card contracts were weighed heavily in favour of banks and that most customers could not possibly understand what they were signing. In an extreme case, a customer could end up paying the equivalent of 86 per cent a year on a $10,000 cash advance. The number of complaints to the council about credit cards has soared in the past two years, from 207 in 1998, 231 last year and 253 in the first eight months of this year. Mrs Chan said a lower limit on liability for lost cards would be better, at $400 rather than the authority's suggested $500. Association of Banks chairman Raymond Or Ching-fai said: 'Whatever proposals the HKMA put up in terms of enhancing customer transparency would be welcomed by us.' He said the cap on interest rates at 60 per cent was fair, as was the requirement that the costs of debt recovery be limited to a 'reasonable' amount. Banks would have no problem spelling out more clearly some of the most important terms and conditions, 'but no matter how you print it, I don't think the majority of the customers would read it', Mr Or said. 'I don't think there's any intention by the institutions to hide these terms.' Mr Or said the $500 limit on liability for lost cards could be problematic, however, as it would be tough to define when a customer had been negligent.