Cut in default charges hits HBOS

Last year, the Office of Fair Trading told all banks and credit card companies to halve to £12 their typical fees for failing to pay bills on time.

Banks have been very secretive about how much they make on such charges.

HBOS has also revealed that sales of repayment insurance fell by 10% last year to £948m.

The drop in income from credit card default fees may seem to be small in the context of the bank's overall earnings and profits.

Last year, it made profits of £5.7bn on total income of £12bn.

But the bank has told investors that lower credit card charges are one of two reasons for slower earnings growth in "non-interest" income from retail banking operations - that is, its earnings from people rather than businesses.

Repayment insurance

The other reason for the slowdown in this source of income was a drop in the sale of repayment insurance.

This has become very controversial in the past few years, with consumer groups describing such policies - also known as payment protection insurance (PPI) - as a "protection racket", claiming they offer little in the way of real value for customers.

Repayment insurance is aimed at insuring people in case they cannot repay their bank loans, mortgages or credit card bills because of illness or unemployment.

HBOS attributed the fall in sales of these policies to a general tightening-up of lending to personal customers, as well as the slowdown in credit card lending last year across the whole banking industry, rather than any dissatisfaction by customers.

Investigations

Earlier this month, the Office of Fair Trading referred the sale of such policies to the Competition Commission for a full investigation.

And the sale of PPI is also being scrutinised by the Financial Services Authority.

The past year has also seen a deluge of demands from members of the public that banks repay "illegal" current account charges.

Along with formal regulatory scrutiny of bank charges for unauthorised overdrafts, and the charges they levy on retailers for processing credit and debit card payments, almost every source of profit for high street banks is under attack.

As a result, the banks are likely to try to recoup some of this lost income by bringing in annual charges for credit cards and ordinary bank accounts.