Credit card firms told to slash ‘unlawful’ late payment fees



CREDIT card companies were yesterday told to slash penalty charges for people who fail to pay their bills on time.

Consumers are being charged more than £300m a year in "unlawful" fees – which are presently set at up to £25.

The Office of Fair Trading, the competition watchdog, said any charge of more than £12 was likely to be unfair under the Consumer Credit Act and called on all card issuers to recalculate their penalties.

The decision on credit card default charges could also have implications for bank fees relating to overdrafts and mortgages.

Although the watchdog cannot impose a cap on fees, it stressed that credit card issuers were expected to adjust their default fee quickly and threatened to take legal action to force reductions.

About six million of Britain's credit card holders paid the fees last year.

The OFT warned: "Where credit card default charges are set at more than £12, the OFT will presume that they are unfair, and is likely to challenge the charge unless there are limited, exceptional factors in play. A default charge is not fair simply because it is below £12."

The ruling follows recent research which showed that Scots have credit card debts almost one-third higher than the rest of the UK.

Research published by the Debt Free Direct charity in January revealed that the average Scot's outstanding bills on credit and store cards amounted to £7848 – 31% higher than the UK norm of £5993.

Mike Dailly, principal solicitor at Govan Law Centre in Glasgow, believes Scots have been overcharged by about £1bn over the past five years.

He said: "In light of the OFT's announcement, we believe that UK banks are now legally obliged to refund all customers for overcharging."

Mr Dailly said he would launch a number of test cases if banks refuse to reimburse clients.

But Paul Smee, chief executive of APACS, a trade body which represents several major credit card issuers, yesterday criticised the report for using information from only eight credit card companies.

A spokesman for the Royal Bank of Scotland said the implications of the OFT ruling were being examined.

Analysts said banks could lose about £1bn in gross revenue if the ruling was applied to other charges.

The consumer group Which? is also campaigning for a reduction in overdraft charges saying that most people who slip into unauthorised credit do so mistakenly.

Ian Mullen, chief executive of the British Bankers' Association, said: "We are very disappointed and surprised to see that the OFT mentions bank overdrafts in their press release on credit card default fees.

"Even though the OFT have been consulting with the credit card industry for over two years &ldots; there has been no consultation with the industry on bank overdrafts."