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Last Updated: Thursday, 1 June 2006, 08:15 GMT 09:15 UK
Banks to cut credit card charges
New style Barclaycard
Barclays is raising its interest rate for many Barclaycard customers
Three of the country's biggest banks are to cut their credit card penalty charges following regulators' demands.

But one of them, Barclays, is also increasing its interest rate for some card holders.

Barclay, Lloyds TSB and HSBC will cut their penalty charges by nearly half from 20 to 12 in the next two months.

The changes were demanded by the Office of Fair Trading (OFT) in April, when it said standard penalty charges levied by card issuers were excessive and unfair.

The OFT said at the time that the UK's banks were illegally overcharging their customers by 300m a year through unnecessarily high charges.

These are levied for late payment of credit card bills, failed payments or spending more than a card's borrowing limit.

The demand for lower charges brought howls of protest from the banking industry, but the banks were told to respond by 31 May.

The OFT does not have the power to impose its order directly, but threatened to take legal action to do so if the banks ignored its instruction.

It also angered the banking industry by suggesting that basic bank charges, such as those for overdrafts, should be capped in a similar fashion.

Royal Bank of Scotland, which owns NatWest, has yet to announce a decision, but said it was still in discussion with the OFT.

Barclaycard

Barclaycard has more than 11 million UK customers in the UK, some of whom will now face paying higher interest rates.

We have to reflect in our pricing the costs we incur in our business
Barclaycard spokesman

From 1 August, when the new lower penalty charge comes in, the interest rate paid by about 10% of its customers will rise by between 2% and 5%, within a range of 14.9% to 29.9%.

Cash advances will now be charged at 27.9%, up from 21.9%.

The bank said that only its most creditworthy customers would pay the lowest rate of 14.9%.

A bank spokesman explained: "We have to reflect in our pricing the costs we incur in our business."


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