Credit card companies have been told that penalty fees – such as late payment charges – should be cut by as much as 50 per cent.
The Office of Fair Trading (OFT) estimates that credit card companies have been raking in GBP 300 million a year in ‘unlawful’ charges for late payment and similar ‘defaults’.
Last summer it warned the UK’s eight largest credit card companies that their penalty charges – typically GBP 20 to GBP 25 – were excessive and gave them three months to come back with comments.
The OFT now says that any such charge of more than GBP 12 is unfair, and it is likely to challenge those above this level unless there are exceptional business reasons for them.
Charges ‘higher than legally fair’
Credit card companies charge the fees if you fail to pay a credit card bill by the due date, exceed the credit limit, or pay with a direct debit or cheque that bounces.
The OFT says that these default charges have been set at a ‘significantly higher’ level than was legally fair and called on all card issuers to recalculate their penalties. It’s given the industry until 31 May to respond.
The OFT says the principle also applies to default charges on overdrafts, store cards and mortgages. Which? has long campaigned against unfair charges. We recently launched a campaign against high default charges for overdrafts, by issuing banks with an ASBO – an Anti-Social Banking Order – and advising customers on how to get their money back (see below).
Which? Personal Finance Campaigner Emma Bandey said: ‘We are delighted that the OFT has finally officially acknowledged what Which? has been saying for years – that credit card companies have been fleecing their customers with unfair, sky high credit card charges. The OFT has also now given a shot across the bows to banks to ensure their charges are fair too.
‘The OFT has confirmed that companies are only allowed to recover certain limited costs and we call on credit card providers to open their books and set fair charges, which may actually be lower than GBP 12.’
Emma Bandey added that current account providers should now act to curb unauthorised overdraft charges rather than wait for the regulators to intervene.