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05/04/2006
OFT clamps down on credit card charges
The Office of Fair Trading has slammed credit card charges, saying that they have generally been set at "a significantly higher level than is legally fair".
Credit card default charges are imposed when customers fail to make the minimum payment on the credit card on time or exceed their credit limit. The OFT estimated that consumers pay more then £300 million through the use of these charges, which it described as "unlawful".
The OFT said that it would now consider any default charges set at more than £12 to be unfair and would consider challenging the fee in court, unless there were "exceptional business factors".
The OFT said that default charges should only be used to recover certain limited administrative costs, including postage, stationery and staff costs.
The OFT said that it now expected all credit card issuers to recalculate their default charges in line with these principles and to take "urgent action" to reduce the level of default fees.
The industry has until May 31 to respond to the statement.
John Fingleton, OFT Chief Executive, said: "Our statement of principles provides practical guidance to banks which increases their incentives to compete vigorously while protecting consumers from being charged unfair amounts.
"Our threshold approach is a spur to changes in market practice. We expect credit card issuers to adjust their default fee levels quickly. We have not ruled out future legal action if the market does not respond positively."
Responding to the OFT's announcement, Paul Smee, Chief Executive of the Association of Payment Clearing Services, said: "Card companies have argued that the default charges that they have historically charged have been fair, transparent and lawful. Any charge will have no direct impact on the eight out of 10 people who don't pay default charges in any one year.
"Reductions in default fees might be welcomed by some customers but it makes more sense to avoid these charges by simply setting up a direct debit to always pay off at least the minimum balance each month.
(KMcA/GB)
Credit card default charges are imposed when customers fail to make the minimum payment on the credit card on time or exceed their credit limit. The OFT estimated that consumers pay more then £300 million through the use of these charges, which it described as "unlawful".
The OFT said that it would now consider any default charges set at more than £12 to be unfair and would consider challenging the fee in court, unless there were "exceptional business factors".
The OFT said that default charges should only be used to recover certain limited administrative costs, including postage, stationery and staff costs.
The OFT said that it now expected all credit card issuers to recalculate their default charges in line with these principles and to take "urgent action" to reduce the level of default fees.
The industry has until May 31 to respond to the statement.
John Fingleton, OFT Chief Executive, said: "Our statement of principles provides practical guidance to banks which increases their incentives to compete vigorously while protecting consumers from being charged unfair amounts.
"Our threshold approach is a spur to changes in market practice. We expect credit card issuers to adjust their default fee levels quickly. We have not ruled out future legal action if the market does not respond positively."
Responding to the OFT's announcement, Paul Smee, Chief Executive of the Association of Payment Clearing Services, said: "Card companies have argued that the default charges that they have historically charged have been fair, transparent and lawful. Any charge will have no direct impact on the eight out of 10 people who don't pay default charges in any one year.
"Reductions in default fees might be welcomed by some customers but it makes more sense to avoid these charges by simply setting up a direct debit to always pay off at least the minimum balance each month.
(KMcA/GB)
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Northern Ireland WeatherToday:It will be cloudy again throughout the day. Mainly dry in the morning, but patchy drizzle in places, becoming more widespread and persistent in the afternoon. Freshening southwesterly winds. Maximum temperature 12 °C.Tonight:Cloudy with a spell of heavy rain pushing south through late evening and the early hours, followed by some clear spells. Minimum temperature 6 °C.
