Page last updated at 14:21 GMT, Tuesday, 9 December 2008

Criticism over Labour credit card

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Labour says its cardholders are aware of what they are doing

Labour has been criticised for urging banks to pass on interest rate cuts while charging "uncompetitive" rates on credit cards offered to party members.

Labour's basic credit card charges interest at a standard rate of 18.9%, rising to 23.9% for cash transactions.

Consumer groups say this is way above the most competitive cards in the market and higher than comparable "affinity" cards issued by charities.

Labour said it did not, in any way, encourage irresponsible borrowing.

Pressure on banks

Gordon Brown has vowed to crack down on lenders charging "exorbitant rates" and ministers are pressurising High Street banks to pass on the full 1% cut in rates announced last week to their customers.

But with rates now at 2%, their lowest level for more than 50 years, consumer groups say Labour and other parties need to pay more attention to financial products sold to their own members.

More than 15,000 people have signed up for one of Labour's three credit cards issued by the Co-operative Bank.

Each time a member takes out a card, Labour gets a 15 donation and the party receives further payments when the card is used.

According to promotional literature, the card has already raised more than 1m.

However, with an APR of 18.9%, campaigners point out that the basic card is twice as expensive as the cheapest rate offered by the Co-op on its own cards of 9.9%.

The Lib Dem credit card, also offered by the Co-op, charges the same standard rate of interest. About 3,500 of its members have signed up.

When the government is preaching to banks to be competitive it is a bit two-faced not to be doing it yourself
Sean Gardner, Moneyexpert.com

One financial expert who compares credit card rates said the Labour card charged well above the current average rate of about 15%.

More tellingly, he said the card was also out of line with comparable affinity cards offered by the likes of Oxfam and RSPB which charge 11.9%, leaving Labour members at a disadvantage.

"It is not punitive but it is on the high side for sure, particularly if you compare it to charity cards," said MoneyExpert.com's Sean Gardner.

He said Labour could do more more to negotiate a better deal for members while the party risked sending out contradictory signals as it takes a tough line with other lenders over high fees.

At a recent meeting in Downing Street, ministers told credit card providers they were prepared to take regulatory action if firms did not treat their customers fairly and responsibly in the current downturn.

"When the government is preaching to banks to be competitive it is a bit two-faced not to be doing it yourself," Mr Gardner said.

"It is quite hard for government to be out there asking banks and consumers to behave in one fashion and not doing it themselves."

'Not irresponsible'

In a statement, Labour said neither it nor the Co-operative Bank "promote irresponsible borrowing".

The credit cards were promoted "in full awareness that individual circumstances differ and that credit cards when used responsibly are a legitimate tool of financial management", it added.

The Tories said they stopped offering credit cards to party members four years ago.

Existing cardholders through MBNA, of which there are less than 100, pay 15.9% standard interest and 27.9% on cash transactions.

The Consumer Credit Counselling Service said most party supporters were aware of what they were entering into when getting the cards.

"I think people taking out affinity cards are reasonably savvy about these things," said a spokeswoman

But she said all cardholders needed to be careful about keeping their card balances under control, particularly over Christmas.

"All people using credit cards should recognise they are an expensive form of borrowing."

Labour's debts have fallen significantly in recent years but the party still has a debt of about 16m.



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