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Last Updated: Friday, 23 February 2007, 15:20 GMT
Lloyds introduces credit card fee
Credit card
Annual credit card fees could be making a return
Lloyds TSB is to impose a 35 annual charge on credit card account holders who do not use their cards.

The annual charge will apply to "low-usage" customers; including people who do not use their cards at all.

The bank has written to 50,000 customers to tell them that the charge will be levied on their accounts 30 days from the date of the letter.

On Friday, Lloyds TSB reported full-year profits before tax of 4.25bn ($8.3bn), up 11% from 2005.

At the same time, Eric Daniels, chief executive of Lloyds TSB, joined a growing chorus of industry figures questioning whether traditional free current account banking for customers in credit can continue over the long term.

Mr Daniels said moves by banking regulators to reduce penalty charges could have an impact on the market for current accounts and pointed to other countries where banking charges are routine.

"If there were to be a reasonably sizeable change (by regulators) then you would probably see a change from some of the players in the UK market," Mr Daniels said.

However, Mr Daniels did not say that Lloyds planned to introduce current account charges.

Card charge

Lloyds TSB would not give a strict definition of what customer activity they define as "low usage."

This will certainly open the floodgates for other credit card providers
Nick White, uSwitch

But they did say that customers who do not use their cards at all can definitely expect a charge.

"This fee only applies to customers who do not use their cards, there is little point after all having a card if you are not going to use it," a Lloyds TSB spokeswoman told BBC News.

As a sweetener, Lloyds TSB has offered customers who start to use their cards more regularly a 0% interest rate deal on all new purchases until May 2007.

Customers who do not plan to continue to use their card and want to avoid the fee should cancel it formally with the bank.

Formal cancellation entails the customer cutting up the card and telling the provider they wish the account to be closed.

Fees imposed

Lloyds TSB's move is part of a growing trend of credit card providers imposing annual fees and charging for switching debt from another card.

Experts believe that credit card firms are trying to claw-back money they lost when the Office of Fair Trading (OFT) ordered providers to lower the charges they impose on people who miss their card repayments.

Last May, the OFT told credit card providers that penalty charges would have to fall from about 30 to 12.

Recently, card provider MBNA said they would start charging a 10 fee on accounts which had a positive balance.

Lloyds TSB's move could lead to other card providers charging an annual fee.

"This will certainly open the floodgates for other credit card providers that are still desperately trying to claw back the lost revenue following the OFT's reduction of penalty charges," Nick White, spokesman for price comparison website uSwitch said.

"The worrying thing is when will this end? Will the 59% of credit card customers that pay their bill off in full every month be penalised next as they are not as profitable as customers that make minimum payments every month?" Mr White added.

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