Cards - Office of Fair Trading (OFT) rules default charges unfair


The OFT says that credit card default charges have generally been set at a significantly higher level than is legally fair. And it estimates that across the industry this has led to unlawful penalty charges currently in excess of £300 million a year.


Default charges can variously be described as charges in standard credit card contracts for a failure to pay a minimum payment on the due date, exceeding a credit limit or a failure to honour a payment made.


With this in mind the OFT now says that where credit card default charges are set at more than £12 it will presume that they are unfair and will likely challenge the charge unless there are limited, exceptional business factors in play.


However, a default charge is not deemed fair simply because it is below £12. But by setting a threshold for intervention the regulator says the initiative is designed to give the industry the opportunity to change its practice without litigation. Only a court can finally decide whether a charge is unfair or not.


As John Fingleton, OFT Chief Executive puts it:

Our statement of principles provides practical guidance to banks which increases their incentives to compete vigorously while protecting consumers from being charged unfair amounts.

"Our threshold approach is a spur to changes in market practice. We expect credit card issuers to adjust their default fee levels quickly. We have not ruled out future legal action if the market does not respond positively.