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Last Updated: Wednesday, 5 April 2006, 12:37 GMT 13:37 UK
OFT cracks down on card charges
Credit card
Late repayment of credit card debt is the main cause of penalties
Charges for failing to make the minimum payment on a credit card bill on time are too high, the Office of Fair Trading (OFT) has said.

A default charge, as it is called, of more than 12 will be considered unfair, the OFT said.

The OFT added it wanted firms to recalculate their charges and only under "exceptional" circumstances would a charge in excess of 12 be allowed.

Consumers pay more than 300m a year in "unlawful" charges, the OFT added.

Default charges should only reflect the administrative costs of dealing with the default
Office of Fair Trading

"Credit card default charges have generally been set at a significantly higher level than is legally fair, " the OFT statement said.

The OFT added that if a credit card firm levied a default charge of more than 12 then it would consider challenging the fee in the courts.

Market spur

An OFT spokeswoman told BBC News that she hoped that firms would put their own house in order.

"This statement is an attempt to move the market quickly, so consumers can benefit," the spokeswoman said.

"Default charges should only reflect the administrative costs of dealing with the default."

The principle that default charges should only reflect company costs is set to have wider implications for many UK banks and building societies.

Ultimately, the OFT said, this principle would apply to default charges on overdrafts, store cards and mortgage products.

'Fair and lawful'

In response, the Association of Payment Clearing Services (Apacs), which represents credit card firms defended default charges as "fair, transparent and lawful."

"Reductions in default fees might be welcomed by some customers but it makes more sense to avoid these charges by simply setting up a direct debit to always pay off at least the minimum balance each month," Paul Smee, Apacs, chief executive, said.

Apacs figures show that 1 in 5 cardholders were hit with default charges last year.

The credit card industry has until 31 May to respond to the OFT statement.

The OFT began its investigation into credit card charges in 2004.

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