Credit card costs 'slashed'

Banks may be forced to reduce credit card processing charges

The UK's Treasury has granted the Office of Fair Trading (OFT) powers to regulate how banks run credit and debit card systems.

The change was prompted by a damning government report on competition in banking published earlier this year by Don Cruickshank, now chairman of the London Stock Exchange.

One of the complaints is that interchange fees - the charges paid by shops or businesses for processing card transactions - are too high and this cost is passed on to the consumer's bill.

"There will be no hiding place for anyone seeking to take advantage of customers dependent on them to carry out essential daily banking transactions such as drawing cash, transferring money or using direct debits to pay bills," says Andrew Smith, Chief Secretary of the Treasury.

The OFT's new regulatory role will give it the power to impose fines on banks falling foul of the new rules and carry out investigations into banking practices.

Increased Competition

Customers hope for reduced prices

The increased regulation is also designed to increase competition in the credit card sector, allowing new entrants "into the market on fair, reasonable and non-discriminatory terms," says the Treasury.

Director-general of the OFT, John Vickers, says the new responsibility fits well with the OFT's core aim, and that it will begin work immediately.

But Cruickshank had originally mooted the idea of creating a separate payments regulator to manage the credit card sector, an idea dubbed 'Paycom'.

But with the regulatory arena already looking cluttered, the Treasury decided not to set up another body to work alongside the OFT, Bank of England and Financial Services Authority, all of which have authority in this area.