OFT Lets Banks Off the Hook

The Office of Fair Trading has said it has no immediate plans to impose limits on overdraft charges despite its earlier report, which said that high credit card charges were unlawful.

In April, the OFT released a report on UK credit card default charges that ruled that charges in excess of £12 were unlawful and unnecessary. The report also held wider implications for the rest of the lending market in the UK, saying that the principles of fee limits on credit cards could be applied to other areas in the lending market such as store cards, mortgages and overdrafts.

However, the OFT appears to have let other lenders off the hook as it stated that credit card charges are its immediate priority. A spokesperson for the OFT said: “ Our priority is the issue that we’ve been looking at, and that’s credit card charges. We’ve made no commitment to do anything other than that.”

While the spokesperson admitted to having no immediate plans to enforce fee limits on banks she did add that they expected them to apply the principle ‘across the board’.

Financial analysts believe that the OFT’s ruling on credit card charges could cost the banking industry an estimated £1.5bn in lost revenue. They also added that similar limits applied to overdraft fees could result in the end of free banking.

In its April report, the OFT stated that banks could only justify charges that covered the costs incurred through a default. Banks were given to the May 31 to respond to the ruling.

The OFT’s investigation into credit card fees was brought on by UK credit card companies continually raising their default fees during the last several years. Credit card companies maintain these rises were necessary in order to offset the lost revenue incurred by offering 0% interest deals on their cards.

Excessive banking and credit card fees has seen a sharp rise consumer complaints to the Banking Code Standards board, who say that complaints were up 50% last year.

Consumer groups have urged consumers who have been victims of unfair and excessive charges to take court action if necessary as the law specifies the difference between charges that can be levied for breach of contract and penalty fees. This gives any consumer who has suffered through unfair charges every chance of being successful with any court action.

Consumer groups such as Which?, have been campaigning for more transparency from banks on how they can justify charges in excess of £30 per day for been overdrawn by a small amount.

Alisdair Milton
5th May 2006

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