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Credit Card Charges Update

I previously wrote an entry on this blog about the Office of Fair Tradings investigation into creditors charges. The past week has seen some developments on this topic, so I thought I should give an update.

credit card12.jpgThe OFT felt debtors who are being charged anything from £20-£35 was too much. The charges occur every time a late payment is made, a credit limit is exceeded or a payment has bounced. Banks are also thought to be overcharging its customers by more than £300m a year. The OFT came to a figure of £12, as it would more than cover the administration costs involved when a debtor doesn’t keep to their credit agreement. The OFT approached the creditors in April with the £12 recommended charge and gave them until the end of May to respond. The following banks have agreed to cut their penalty charges but all disagreed with the OFT’s legal reasoning behind the charge of £12.

By the end of June, Lloyds TSB and HSBC will cut their charges. Barclaycard (the largest card provider) have agreed to cut their costs and will do so from 1st August. Royal Bank of Scotland (who own NatWest) have considered the OFT proposal but will not be cutting them as low as £12. Also Nationwide are planning to respond in the next month and surprisingly Capital One have not responded.

In the creditors’ defense, you can appreciate why they charge high penalty costs – particularly when a customer breaks a signed contract that states they will pay a given amount on a given date. The high charges should act as a deterrent but life is unpredictable and those juggling their debts will inevitably run over their overdraft limits or make a late payment at some point. High charges often make individuals debt situations worse, so those struggling financially will welcome the new £12 penalty charge.

However as many of the lenders have complied with the OFT many will look at alternative ways to make a profit, such as increasing charges elsewhere. For example it has been suggested that free current accounts may soon be a thing of the past and Barclaycard may push APR up from 17.5% to more than 20%.

Is this fair? Should people who don’t breach their credit agreements pay more?

Written by markw on June 6th, 2006

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