OFT says late payments fees should not exceed £12

Thefunkygibbons · 5 April 2006 at 11:09AM

Charges for failing to make the minimum payment on a credit card bill on time are too high, the Office of Fair Trading (OFT) has said.
A default charge, as it is called, of more than £12 will be considered unfair, the OFT said.

The OFT added it wanted firms to recalculate their charges and only under "exceptional" circumstances would a charge in excess of £12 be allowed.

Consumers pay more than £300m a year in "unlawful" charges, the OFT added.

Default charges should only reflect the administrative costs of dealing with the default

Office of Fair Trading

"Credit card default charges have generally been set at a significantly higher level than is legally fair, " the OFT statement said.

The OFT added that if a credit card firm levied a default charge of more than £12 then it would consider challenging the fee in the courts.

Market spur

An OFT spokeswoman told BBC News that she hoped that firms would put their own house in order.

"This statement is an attempt to move the market quickly, so consumers can benefit," the spokeswoman said.

"Default charges should only reflect the administrative costs of dealing with the default."

The principle that default charges should only reflect company costs is set to have wider implications for many UK banks and building societies.

Ultimately, the OFT said, this principle would apply to default charges on overdrafts, store cards and mortgage products.

A spokeswoman for Barclaycard, the UK's biggest credit card provider, with 11.2 million cardholders, said it was "seeking further clarification from the OFT and will consider the implications fully before responding any further."

The credit card industry has until 31 May to respond to the OFT statement. The OFT began its investigation into credit card charges in 2004.

Good news but I am sure the banks will get their profit elsewhere

eagle · 5 April 2006 at 11:33AM

Thefunkygibbons wrote:

Good news but I am sure the banks will get their profit elsewhere

I quite agree. I wonder how many cashback cards will stop being cashback cards as a result?

Alleycat · 5 April 2006 at 11:47AM

Theres going to be further info on Channel Five news tonight with guests who have successfully claimed back their charges from the banks being interviewed.

mr_fishbulb · 5 April 2006 at 12:10PM

Thefunkygibbons wrote:

Good news but I am sure the banks will get their profit elsewhere

Yes - they will probably get them back from people like me who never make a late payment :mad:

Rafter · 5 April 2006 at 1:16PM

Just waded through the OFT ruling on oft.gov.uk press release area.

Looks like good news from consumers and that the £12 is an absolute limit which can still be challenged in court.

Doesn't seem to stop the current opportunity to reclaim your bank or credit card charges from the past. A bank will still have to demonstrate in court what their true costs are inline with the OFT guidance and many may not be prepared to do so still.

Any OFT staff reading this.... THANK YOU - it is a major step forward for consumers and hopefully horror stories like my mother in laws around living on the breadline because of excessive bank charges will become a thing of the past.

R.

Milarky · 5 April 2006 at 1:52PM

Here's the OFT press release for easy reference:

http://www.oft.gov.uk/News/Press+releases/2006/68-06.htm

Current credit card default charges unfair

OFT sets threshold for intervention

68/06 5 April 2006

The OFT now expects all credit card issuers to recalculate their default charges in line with the principles set out in a statement published today and to take urgent action where needed to reduce the level of credit card default fees. The industry has until 31 May to respond to the statement. These principles also apply to default charges in other consumer contracts such as those for bank overdrafts, store cards and mortgages.

Applies to bank charges too (interesting to see how soon you bank puts out a "Notice of Variation" leaflet telling you they are dropping their charges?)

Anon · 5 April 2006 at 10:59PM

Featured on ITN this evening as well (and apparently on The Times front page tomorrow) - I wonder if OFT or other officials will also turn their attention to the "0%*" deals with the 2/2.5/3% (uncapped) "handling" fee?

For example, the latest Capital One offer (0% until August 2007 - https://www.capitalone.co.uk/web/raid/templates/formdual_temp_10_001.jsp?page_id=10401&context_id=2&step=1&product_id=2011) includes in their terms and conditions:

An effective rate of 0.00% p.a. fixed until the day after your August 2007 monthly statement, and then 15.94% p.a. (variable), until repayment.

Yet further down under "Other Charges" it then refers to:

See 'Current Amounts of Other Charges and Other Features' below and sections 11, 12, 13 and 18 for other charges which may be payable under this agreement.

which then directs you to:

Balance transfer handling fee2% of the amount of the transaction.

So when is an effective 0% rate not effectively 0%...

Anon

Milarky · 6 April 2006 at 8:57AM

Yes but that is a 'misleading' interest charge rather than an 'unfair' one - the interest rate being disguised in the fee. We can all work it out here but it isn't there for us - it's there to sucker-in the less suspecting punters. If 'charges' are ruled out (more likely to be capped at £50 or £35 than scraped following this OFT ruling) the card companies could bring down the periods of offers from from 9 to 6 months maybe.

michaels · 6 April 2006 at 10:52AM

<Rant>
I don't get this either - surely if I enter into a contract where all the fees and charges are communicated before hand then I should abide by that contract - whether some of the charges have a profit element built in or not...or how about the government saying that although I earn £x a month I can actually survive and feed my familly on only £y so I must pay back the difference to my employer...hang on they already do that its caled tax and NI and it doesn't go to my employer it goes to those who don't bother to work / haven't bothered to save for their retirement and probably are paying charges to credit card companies cos they have bought things they don't earn enough to afford and can't be bothered to forgo a few nights out to make sure they have the funds to pay the minimum balance on the date they originally agreed to.
</Rant>

The_Boss · 6 April 2006 at 11:00AM

I totally agree with previous two posts. The late payers are going to ruin it for all of us who can be bothered to abide by our T&Cs, can be bothered to pay on time and can be bothered to stay within our limits. I hope those that got their money back spent it all at once and now get invoiced back £13 for every late payment.

These guys should be ASHAMED and EMBARASSED at themselves, but instead they run around with big grins on their faces because they have got some money back. You can understand one late payment or one over limit charge at most, but after that there is no excuse. In future, I reckon that after one of these, credit card companies will just recall the debt.

Thefunkygibbons · 6 April 2006 at 1:06PM

I know that it is up to individuals, but there have been instances of credit cards moving dates forward to catch people out and who knows how often statements are posted late or not at all

OFT says late payments fees should not exceed £12

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