July 26, 2005

OFT warns credit cards

by brian_turner

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The Office of Fair Trading (OFT) has told eight major credit card companies that the fees they are charging for late payments are too high. Charges up to £25 are being imposed and the OFT has given the companies three months to adjust them. If the firms do not comply, they could be prosecuted and fined.

The OFT launched an investigation into late payment fees in October 2003. It discovered that the sum generated from the default charges was greater than the costs incurred by the companies in managing late payment. It said that as the law restricts damages that can be awarded to compensate for loss suffered as a result of a breach of contract, the late payment fees were disproportionately high.

Credit card companies maintained that the charges were fair, throughout the investigation.

The companies under investigation are guaranteed anonymity under OFT rules. However, Barclaycard and Royal Bank of Scotland (RBS) came forward to defend the need to impose the late payment charges.

A spokeswoman for RBS credit cards said: “Only a very small proportion of customers attract a default charge and as a responsible lender we must have a process in place to manage late payments”.

Barclaycard supported the statement from RBS, but said it would fully co-operate with the OFT to address the issue of late payment charges.

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