THE consumer watchdog is to investigate leading credit providers amid fears that they are flouting laws that require the advertised headline interest rate to be offered to most applicants.

Legislation on the advertising of loans and credit cards, which came into force in October last year, forbids banks from offering enticing low interest-rate offers unless 66 per cent of customers are successful in their application. But a recent investigation by the Office of Fair Trading (OFT) found that 60 per cent of advertisements for loans and credit cards were flouting these laws.

Lenders’ use of risk-based pricing, which enables them to charge a higher rate of interest to borrowers with a tarnished credit history, allows them to advertise a headline rate of interest that many borrowers may not receive. For example, Barclaycard advertises a rate of 15.9 per cent on its Platinum card but borrowers who do not come up to scratch may end up paying as much as 18.9 per cent on a Classic card.

OFT officials will analyse how banks and credit card companies make lending decisions to make sure that only a small minority of applicants obtain expensive deals, while the majority obtain the rate that they apply for.

The OFT said that officials would embark on a “targeted sweep” of lenders that would involve analysis of “complex lending data”.

A spokeswoman for the OFT said: “In the past we have looked at credit advertising from a reactive basis if someone had flagged it up as a problem. We will now be proactive in our approach.”

Moneyfacts, the price comparison website, welcomed the move by the OFT. A spokesman said: “This is great news for consumers because they will know that if they apply for a loan or a credit card they will have the same chance of being successful, whatever lender they apply with.”

Moneyfacts has criticised the OFT’s reliance on trading standards officials and citizens advice bureaux to weed out lenders that break the law.

Members of the Commons Treasury Select Committee have in the past criticised the OFT for not taking appropriate action to ensure that credit advertising regulations were being obeyed by banks and lenders.

INTEREST RATES

• Halifax One Card: annual percentage rate (APR) of 12.9 per cent but borrowers can pay as much as 19.9 per cent
  
• Barclaycard Platinum: an interest rate of 15.9 per cent but borrowers can be rejected and obtain the Classic card, which is 18.9 per cent Source: Moneyfacts