Credit Card Companies Recoup Their Lost Charges : Credit Card Guide

Credit Card Companies Recoup Their Lost Charges

Credit card companies are finding new ways to charge their customers to make sure their profits remain high following last year’s restriction on penalty charges.

The Office of Fair Trading’s (OFT) ruling that credit card providers could only charge a maximum of £12 as a penalty hit the providers, many of whom had been charging more than double that.

Since the ruling, however, the range of other fees and charges has “notably increased” according to consumer watchdog magazine Which? Tactics such as increasing the annual percentage rate (APR) and cash withdrawal rates have helped the credit card companies to recoup £815 million, according to price comparison website uSwitch.com. This is way above the £300 million they lost from the reduced penalty charges.

Which? also found that several providers had reintroduced an annual fee. As an example, the Northern Rock Base Rate Tracker card comes with a £2 a month, or £24 a year, fee, as does the Co-op Bank Platinum Visa credit card.

Lloyds TSB recently sent a one-off letter to its credit card holders, telling them there would be a £35 annual fee for customers who did not use their cards over a long period.

Britain’s most popular credit card – and the oldest - is Barclaycard, who are considering charging up to a million customers without enough activity on their accounts. The charge may be between £12 and £24 a year for possessing the card, but not using it.

Royal Bank of Scotland, NatWest and Mint have come up with a new one; they are going to charge their customers £12 if they don’t notify their card provider of a change of address.

Balance transfer fees are also creeping up. When you switch a balance from one provider to another you may be attracted by the headline of a 0% interest for a year or so, but look out for the transfer fee. These have gone up to around 2.5% on average. Halifax’s balance transfer fee has gone up from 2% to 3%, so a transferred balance of £5,000 would now be subject to a fee of £150, compared with £100 last year.

In June last year both HSBC and First Direct changed the order in which customer debts were paid off. Thus, payments now start by clearing the cheaper balance transfers rather than paying off purchases which are charged at an expensive interest rate.

uSwitch.com’s Nick White said: “Credit card providers have squeezed every last penny out of consumers to recover their lost millions and have more than recovered it over the past year.”

Money search engine Moneyfacts’ Joanna O’Brien suggested that the Saga credit card – for those over 50 – and the Nationwide credit card were both up front about their charges.

Martin Hocking, editor of Which?, said: “Credit card providers seem to be resorting to a raft of ingenious methods to recoup lost revenue following the OFT crackdown on penalty fees.” Consumers, he advised, should check the small print to see what charges might apply to them, and how they might avoid them.

Tom Smith
13th September

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