July 16, 2006

By Peter Kenny

Earlier this year the Office of Fair Trading (OFT) decided that default charges made by banks and credit card companies were overpriced and excessive.

Penalty fees were applied to consumers accounts due to late repayments, unauthorised overdrafts and bounced payment cheques. The fees applied by banks and credit card companies were as high as £25 per transaction. The OFT decided the size of default fee was excessive and demanded charges be reduced to a maximum of £12 per transaction. May 31st was set as a date for compliance with the OFT’s decision

Most banks and credit card companies did indeed reduce their default charges by May 31st, although, there are some still holding out with Morgan Stanley, Citi Bank and Capital One amongst them.

There has been resistance to the decision made by the Office of Fair Trading with some companies increasing APR on purchases and cash withdrawals to make up for the losses made with the default fee reduction. Balance transfer fees have also been increased generally across the board with the Halifax introducing a 3% open-ended fee, which is the highest in the market.

The object of our poll was to determine the opinion of credit card consumers. We asked the question, “Would you avoid a credit card with high penalty fees?” Nearly 95% of those who took part in our poll said they would avoid a credit card with high penalty fees.

This is a clear indication that credit cards with fees that are deemed to be excessive in the public eye will be avoided. It is not clear if the £12 fee guideline set down by the OFT is set in stone, however, with the UK public now aware that credit card companies and banks have been shown to be charging excessive credit card fees, any action taken to increase the £12 fee guideline will be immediately scrutinised.