12th June 2006

Following the Office of Fair Trading’s investigation into credit card penalty charges for late payments and exceeding credit limits, many card providers have been forced to reduce their default charges.

The OFT concluded in April 2006 that the charges were excessive and demanded that firms limit charges to £12 or face possible legal action. The OFT gave all card issuers until May 31st to respond to their demands.

Financial services research firm, Defaqto has suggested this may lead to the demise of 0% introductory offers.

Defaqto found that 88.9% of cards charged more than £12 for returned payments while 99.5% exceeded £12 for both late payments and over limit spending.

Providers including Halifax, American Express and MBNA, levied late payment fees of £25, with the majority of other providers charging between £20 and £25. The OFT ruling to force a reduction in charges is likely to have a major impact on the revenues of credit card companies.

Defaqto believes in order to compensate for the loss of revenue, card companies may pull back from offering 0% introductory offers and increase standard interest rates.