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Sep 11, 2006
Credit card
issuers in the UK
have agreed to lower their default charges following the release of the
statement of principles by the Office of Fair Trading (OFT) regarding the
calculation of default charges.
Last April, the
OFT noted that credit card default charges had been generally set at a
significantly higher level than was considered fair. The government watchdog
eventually established a £12 threshold for OFT intervention. Although many card
issuers have stated that they do not agree with the OFT's view of the law,
there was an overall reduction in charges across the market, and OFT expressed
belief that there is no further intervention warranted at this time.
The April statement also indicated that the OFT considers that the broad
principles in relation to default charges are likely to be relevant to other
standard agreements with consumers such as those for bank current accounts. The
responses received from the banking industry have generally challenged this
belief but the OFT remains of the view that the broad principles do read across
to the retail banking area and has decided to undertake further work on the
application of these principles to bank current accounts.
In the course of
this work the OFT will liaise closely with the Financial Services Authority
(FSA) and hold discussions with the British Bankers' Association (BBA) to
ensure that distinctive features of retail banking and the circumstances in
which default charges are applied are identified and taken into account. The
OFT has also been made aware of concerns about the personal current account
market in Northern Ireland by the General Consumer Council (GCC) and will
consider its report as part of this exercise. This fact-finding exercise is
expected to take between three to six months, at which stage the OFT will
consider whether a further detailed investigation of the fairness of individual
bank default charges is needed.
John Fingleton, Chief Executive of the OFT said, “The reduction of default
charges on credit cards is great news for consumers. By taking an innovative
approach to this issue, the OFT has brought about a significant change in one
area of the financial services sector. We are now extending that work to inform
ourselves about account default charges. We welcome the willingness of
organisations such as the BBA to work with us in looking at the application of
the principles we set out in the April to this area.'”
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