unfair UK bank charges

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OFT says default charges must reflect real loss

OFT consults with eight credit card companies on the level of their default charges

135/05    26 July 2005

The OFT has written to eight major credit card companies to consult on its provisional conclusion that the levels of default charges they impose (e.g. for late payments) are excessive.

A charge currently of around £20 to £25 is payable if a cardholder fails to pay his credit card bill on the due date, exceeds his credit limit, or pays on time but by a direct debit or cheque that is not honoured.

The OFT believes that it is unfair for the purposes of contract terms regulation to require a consumer who defaults in one of these ways to pay a disproportionately high charge. The OFT considers that, in a consumer contract, a default charge is likely to be disproportionately high if it is more than a genuine pre-estimate of the damages that the card issuer would win in court if it sued the cardholder for breach of contract.

The law restricts the damages that can be awarded to compensate for loss suffered as a result of a breach of contract. The breach must be an effective cause of the loss. The innocent party is entitled to be compensated for certain types of loss that were reasonably foreseeable at the time that the contract was made, but is not entitled to more.

The OFT believes that a default charge calculated in accordance with these principles would be likely to be fair under the contract terms regulations. The OFT's provisional view is that the levels of the default charges imposed by the credit card companies need to be reduced in order to be fair.

The credit card companies have cooperated with the OFT's investigation into default charges. They have stated that they consider their default charge provisions are fair. The OFT has now explained to them why it does not accept their view and has given them three months in which to provide suitable undertakings or otherwise to address the concerns it has raised. The OFT has powers to take enforcement action in the courts if necessary to protect consumers.

Credit is one of the OFT's five priority sectors.



The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) revoke and replace the Unfair Terms in Consumer Contracts Regulations  1994 which came into force on 1 July 1995. The UTCCRs protect consumers against unfair standard terms in contracts they make with traders.

This press release can be found on the OFT's website at: http://www.oft.gov.uk/News/Press+releases/2005/135-05.htm


example of bank charge letter

example of bank charge letter

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