In April 2006 the Office of Fair Trading published a damning report following an investigation into the fairness of standard terms of charges for card holders who fail to pay on the due date, exceed a credit limit or fail to honour a payment made.

Following discussions with eight leading credit card issuers and their legal teams, the OFT concluded that card companies were unlawfully making up to £300m a year from late payment fees.

Until the OFT investigation, charges were typically between £20 to £25 which the OFT felt was potentially unfair under the Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations). They believed charges at level were raising more in revenue than is reasonably expected to be necessary to recover certain limited administrative costs incurred by the credit card issuer.

The OFT stressed that default charges should only be high enough to cover postage and stationery costs, and also a fair share of the costs of employing staff and of maintaining offices and computer systems in order to deal with defaults of the same kind. It recommended that the fees should be capped to a maximum of £12 and threatened legal action against card companies who had charges above this threshold.

Barclaycard, HBOS, Royal Bank of Scotland and Lloyds TSB are among the card companies who have subsequently reduced their fees following the OFT recommendation.

However, in order to offset the enforced reduction in late payment fees, many card firms have increased their interest rates to offset enforced cuts in their default fees.

Financial data firm Moneyfacts said 19 leading credit card issuers have put up their charges. For instance American Express has increased the rate on one card by 6%, while Barclaycard's Platinum card customers have seen the rate they have to pay for cash withdrawals increase from 6% to 27.9%. Mint has increased the interest rates for cash withdrawals on its standard, gold and platinum Visa and MasterCards up from 5.5% to 24.9%.


Article updated 28/09/06

Article added: 16/06/06