Banks slash credit card charges

Three of the UK's biggest banks will cut their charges for late payments on credit cards following a watchdog's ruling that card providers were illegally earning £300m a year from the fees.

In April, the Office of Fair Trading said the charges amounted to an unfair penalty on customers who had failed to pay on time and that they did not reflect the cost of dealing with a late payment.

It recommended a maximum charge of £12, rather than the £20 to £25 commonly charged by card providers and gave the industry until May 31 to respond.

Yesterday, several leading card providers told the OFT that they would be cutting their fees this summer, although they disagreed that the charges were unlawful.

Barclaycard, which has more than 11 million customers, said it disagreed strongly with the OFT's analysis, but had decided to cut its fees from £20 to £12 from August 1 to "remove uncertainty and create clarity for customers".

However, on the same day it will increase its APR on cash advances, from a typical rate of 21.9% to 27.9%, and the interest rate for purchases will increase by up to 5% for certain customers.

Lloyds TSB, which analysts said in April could lose £230m in profits if it cut its charge, also disagreed with the OFT's legal reasoning, but said it would reduce charges from £20 to £12 from June 28. HSBC customers will also see fees cut to £12 on June 28.

Other card providers are expected to follow suit, although they have not confirmed their plans.

Halifax, for example, said it had responded to the OFT before yesterday's deadline but would not say what it had told the watchdog. It charges £25 for late payments.

The OFT does not have the power to impose a cap, but it can take legal action against any card provider than continues to overcharge. John Fingleton, its chief executive, has warned banks that it would litigate "if necessary".

Doug Taylor, personal finance campaigner for the consumer group Which?, welcomed the reduction in charges, but said card providers should be more transparent.

"The OFT said that the suggested £12 charge may not necessarily be fair, but that anything above £12 is likely to be unfair. So, we still do not know whether the £12 actually represents a fair charge and repeat our call to all providers to open their books to scrutiny and show the true costs involved.

"Charges on current accounts, such as those applied when customers stray into overdraft, can be anything up to £35. Which? hopes that banks and current account providers will take the same view on these charges and reduce them accordingly."

Although the OFT said in April that the basic principles of its findings applied to agreements for bank overdrafts, mortgages and store cards and urged companies to reconsider their penalty charges in those areas, it did not call for a limit on them.