This invesitgation by the Office of Fair Trading has been going on for the past 2 years and they have finally said that charges on credit cards should no longer exceed £12, which is less than half the amount inccured at the moment. They believe this to be a fair amount. Consumers have been paying more than £300m a year on ‘unlawful’ charges according to the BBC news. Default charges incurred on overdrafts, mortgages and store cards could also soon be lowered as they are invited by the OFT to review their changes.
The OFT wrote to eight major credit card companies last year to inform them of their feelings that the charges were too high. The OFT produced a statement that outlines principles they think the credit card companies should follow to set default charges. These principles are not only to protect consumers from incurring high charges but also to make the banks compete fairly by offering low default charges.
The following reasons may result in default charges:
- Exceeding credit limit
- Repayments that bounce
The credit card companies reasoning behind charging these ridiculous fees are because the customers are demanding 0% interest card deals. The credit card companies stand to lose more than Â£1.5bn if they reduce their late payment fees. They argue the late fees they charge are fair and lawful as do the Association of Payment Clearing Services (Apacs), who represents credit card firms.
The £12 charge should cover the administration costs involved when a client defaults. They feel the current figure is unfair, as it requires consumers to pay more than if the court sued them for breach of contract. There is no suggestion that setting the £12 default fee will be suitable in all situations and all circumstances should be taken into consideration. The OFT feels that if the charge is above £12 they will investigate the reason behind the high default charge. Critics believe the reduced charges are still too high as the costs involved when the customer defaults is much less than £12.
The choices available to the credit card companies are:
- Continue to charge the excessive fees and call the bluff of the OFT and face the fee being challenged in court.
- Reduce their charges to the recommended level of £12.
The OFT realise that the credit card companies will need time to adjust to these charges as it is expected to be a lengthy process and costly, as IT systems and other changes will be needed. The OFT feel that asking them to reduce their default charges will be sufficient enough to encourgage them to make the changes and will also bring a quicker benefit to consumers. Although they will consider further action if the credit card companies fail to make sufficent changes within a reasonable time frame.
They have until the end of May 2006 to make their decision regarding reducing their default charges.
If your are experiencing default charges Contact Payplan for free impartial debt advice, who can also help negotiate freezing your interest and charges.