Credit card charges 'excessive

Credit card companies have been told they have three months to change their late payment charges for customers, or they will face action from the government's consumer watchdog.

The Office of Fair Trading (OFT) has told eight major credit card providers that their charges for late payments are excessive and has today given them three months to address its concerns.

Card companies apply a fee 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.

Typically, companies charge between £20-£25, a figure which the OFT says is unfair for consumers. It argues that they should not be charged a fee that is more than the card issuer would be awarded in court if it was to sue a cardholder for damages.

It said a default charge calculated in accordance with these principles would be likely to be fair under the contract terms regulations and that the late payment charges imposed by the credit card companies need to be reduced in order to be fair.

The credit card companies have cooperated with the investigation and have told the OFT that they consider the charges to be fair. However, the OFT disagrees, and has said that if its concerns are not addressed in the next three months, it may take legal action against the card providers.

A spokesman for the OFT said it had no figure in mind as to a fair fee but it was up to the card issuers to come up with a fairer approach to charging late payers.

He added that the eight companies had been focused on because they appeared to have the majority share of the market, and that the OFT hoped to offer guidance for other card providers charging similar rates.

According to financial information company Moneyfacts, just six providers charge less than £20 for late payments, with the lowest fees being £10 on the Saga card, offered by Liverpool Victoria, and the £12.50 fee applied by First Trust bank.

Barclaycard - one of the eight credit card firms involved - has pledged to cooperate fully with the OFT investigation. But it said there were no plans to lower its charges of £20 for late payments or cardholders exceeding credit limits.

"It must be remembered that these fees are easily avoided if people make payments on time and stay within their credit limit and within the terms and conditions of the contracts that they signed," said a spokeswoman for Barclaycard.

Mike Naylor, principal researcher for consumer group Which?, said it was "great news" that the OFT would consider taking action against credit card companies that failed to reduce default charges.

He said: "Recent Which? research has shown these charges don't reflect the costs the banks incur, and the card issuers make millions each year from these charges.

"We'd also like the OFT to look at other situations where banks hit customers with unfair charges."