BB FANS

Telegraph
(Filed: 05/04/2006)

Penalty charges for missed credit card repayments should be no higher than £12 according the Office of Fair Trading, which says consumers are being charged more than £300 million a year in unlawful penalties.

The OFT said default charges had been set at a "significantly higher" level than was legally fair and called on all card issuers to recalculate their penalties.

It said it would consider any penalty charge of more than £12 as being unfair, and was likely to challenge those above this level unless there were exceptional business reasons for them.

Default charges are levied by card providers if people are late with minimum repayments, exceed their credit limit or make repayments by cheque or direct debits which are not honoured.

Figures from Apacs, which represents the banking industry, showed nearly one in five card holders was hit with a penalty charge last year. Research by moneysupermarket.com found the average charge was £22.68.

The OFT said default charges should only be used to recover certain, limited administrative costs, such as postage, stationary and staff costs, and gave the industry until May 31 to respond to its statement.

It added that the principles it had set out also applied to default charges on overdrafts, store cards and mortgages

John Fingleton, OFT chief executive, said: "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."

But Apacs said card companies felt their default charges were fair, transparent and lawful, and warned implementing the OFT's recommendations would "not be straightforward".

Consumer groups welcomed the news. Claire Whyley, policy officer at the National Consumer Council, said: "NCC is delighted to see an end to rip-off bank charges which have been a penalty and a punishment for thousands."

Emma Bandey, personal finance campaigner at Which?, 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."

Totally disagree. If people can't remember to pay their balances off each month, or set up a direct debit for the full/minimum amount that is their problem. They should know what these charges are. They've also had the benefit of 50-odd credit days and the convenience.

It's the same with overdrawn accounts, if people can't manage their accounts they shouldn't have them. All these fees cover the huge expenses of putting in systems and infrastructure (and human resources) in place to capture people who have spent too much or haven't paid up. Why should the person who pays on time have to subsidise those who can't be bothered? The card issuers/banks will only think of other ways to recoup potential losses, probably with higher rates of interest, etc, costs that would be picked up by the rest of us. If people don't understand how credit or finances work then they should get off their butts and learn.

You are welcome to your opinion but I have personally fallen foul of this recently. I lost my job in February, was unable to claim any benefits as I didn't qaulify through being self-employed in the periods they were using to calculate this. My job had been a sort of community worker, on a rolling funded basis.

I had been paying my bills regularly, plus fees for 'payment protection' should I be out of work. Now I'm told that I was not employed full-time through it being a funded post and I don't qualify for any insurance cover - on three credit cards in all!

I'm unable to pay the companies and have taken great pains to explain this to them, so they slap on a further £50+ per month in charges for late payment fees and processing. I think this is grossly unfair as they know what my situation is.

My only option is to declare myself bankrupt, at which point they will freeze the balances and stop adding interest and take it to the courts. The daft thing is that I have to pay to be made bankrupt unless a creditor takes the action.

I'm not saying that those who do pay should subsidise this, but feel that the credit card companies are charging way too much in cases like mine. The charges are applied by computer, it's in addition to the interest the cards accrue anyway and it's spiralling all the time. It's got to the point where two of the three cards are now over limit, adding even more bloated charges!

I've no way of paying them. My wife works but every penny she gets goes on the bills we have to pay. Having been on two incomes, then dropping to one, has hit us very hard! I'm looking for another job but I'm hardly a spring chicken so I don't even get to interview stage.

My only hope is that my old job will come back up in September - and it will then be a real struggle to get back on top of everything as these charges will have added well over a thousand pounds to what was there before. Had they been capped, as suggested in the original post, this would have been more manageable.

Just hope YOU don't get in that situation...

OG - rattled by the blinkered view!

In a capitilistic economy, I find it bizarre how some agency can dictate to a private corporation just how much it is going to charge.

Twisted society.

Calrissian: does not have credit cards