Telegraph | Money | Cut the card penalties or else, warns OFT: "Cut the card penalties or else, warns OFT
By James Moore, Financial Correspondent (Filed: 27/07/2005)

Credit card companies were yesterday ordered to cut penalty charges for people who pay bills late or face legal action.

The Office of Fair Trading said it believed that penalty charges of around ?20 to ?25, payable when cardholders fail to pay bills or exceed their credit limits, were 'unfair' and 'excessive'.

Credit card penalty charges: 'unfair and 'excessive'

The regulator has written to eight banks - which it refused to name - to inform them of its provisional findings. It said the eight accounted for the majority of the credit card market in the UK.
The OFT said it would now hold consultations on its findings but warned banks that they had just three months to either cut the charges or find some other way of addressing its concerns.
Penalties are also imposed when consumers attempt to pay bills with a cheque or direct debit that is not honoured.

The regulator said that it based its findings on laws that restrict damages a company can charge consumers for breach of contract. It said it did not believe that the charges imposed by banks would hold up if they sought to recover them by sueing card holders for breach of contract in court.

It also warned that failure to act would result in banks facing legal action to enforce charge cuts.
The OFT said: 'The credit card companies have co-operated with the OFT's investigation into default charges. They have stated that they consider their default charge provisions are fair. The OFT has now explained to them why it does not accept their view and has given them three months to provi . . ."