April 15, 2006

By Peter Kenny

With recent decisions by the Office of Fair Trading (OFT) and a High Court ruling, it is feared that many of the 0 per cent credit card deals we currently see on the market could start to be reduced.

The move by the OFT to demand that banks and credit card companies reduce their penalty charges, came hard on the heels of a High Court ruling that forced credit card companies to extend their credit card guarantee scheme to transactions made overseas.

The OFT has demanded that penalty charges for late payments, bounced cheques and unauthorised overdrafts be reduced to a maximum of £15. This move could cost banks and credit card companies over £400 million each year.

A recent High Court ruling determined that credit card companies must ensure that their credit card guarantee scheme covers consumers who make any transaction while abroad. This move overturned an earlier decision in the credit card company’s favour back in 2002. The ruling covers transactions made between £100 and £30000.

Just this week the European Union (EU) issued a strong ultimatum to banks and credit card companies demanding that their “outrageous” fees be reduced or face legal action.

All this good news for the consumer does come with a sting in the tail. The banks and credit card companies will now want to try and claw back some of this lost income. We have already seen some evidence of this where certain are reducing their interest free period. An interest free period is the time when you make a purchase and are then asked to pay the amount or a minimum balance, often 50 – 59 days. In some this period has been quietly reduced which means the banks and credit card companies earn more.

We have also noticed APR’s on the rise and the reintroduction of the dreaded annual fee.

Many now have a balance transfer fee. This fee has normally been about 2% of the balance you wish to transfer and is capped at £50, however, more and more are withdrawing their capped fee and increasing the balance transfer fee to 2.5 – 3 per cent.

The next step will no doubt be the reduction of the many 0% deals currently on offer. It must be remembered that banks and credit card companies do not make any profit on these deals and if an income stream like the few mentioned above is reduced or cut off then the only course of action is to re-evaluate the offer of 0 per cent introductory promotions.