UK Credit Card Companies Cut Charges

Several major credit card issuers, including Barclaycard, Halifax, HSBC, Lloyds TSB, MBNA and Nationwide, have announced that they will cut their charges, from £20 or more to £12.

The move follows a ruling by the Office of Fair Trading in April, which declared that credit card operators must reduce their default charges or face legal action. It said that banks making charges with the intention of raising more in revenue than was needed to cover their own administrative costs were unfair on their customers, and estimated that unlawful penalty charges across the banking industry were currently running at more than an astonishing £300 million a year.

Halifax's parent company said, reluctantly, "While HBOS disagrees with the legal analysis of default fees outlined in the OFT's April statement, we can confirm we will reduce these fees across our credit card product range to £12 with effect from August 1, 2006."

However, consumer watchdog Which? aren’t entirely satisfied with the OFT’s ruling, with Doug Taylor, the organisation's personal finance campaigner, saying: "The Office of Fair Trading said that the suggested £12 charge may not necessarily be fair, but that anything above £12 is likely to be unfair. So, we still do not know whether the £12 actually represents a fair charge, and repeat our call to all providers to open their books to scrutiny and show the true costs involved."

Despite the huge cuts in late payment fees, cardholders should exercise caution before celebrating, as the card issuers will no doubt find other areas in which to raise rates and charges in order to retain their profits.

For example, Barclaycard, the biggest card issuer in the UK, with more than 9 million customers, whose late payment fee is coming down from £20, has hiked the interest rates on its cards from August 1. On that day the penalty charge goes down from £20 to £12. Barclaycard says, "We have to reflect in our pricing the costs we incur in our business."

The interest rate paid by about 10% of Barclaycard customers will rise by between 2% and 5%, within a range of 14.9% to 29.9%, and only customers with the lowest credit risk will get away with paying the lowest rate of 14.9%. Interest charged on cash advances will now soar to 27.9%, from a still pretty expensive 21.9%.

Alisdair Milton
19th June 2006