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Bank Penalty Charges Too High? |
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The following is an adaptation of an article appearing in Scotland on Sunday on 31st July, 2005.
THE Office of Fair Trading has given eight of the UK´s biggest credit card companies three months to justify the charges they apply to customers who exceed their credit limit or pay their bills late. Included in the set are the Royal Bank of Scotland and Bank of Scotland. It is thought that enforcement action may follow.
The call came after an 18-month investigation into the level of penalty charges applied to credit card customers. But the companies concerned believe they can justify charges of between £20 and £25. A spokesman for Bank of Scotland told Scotland on Sunday:
"It is not the charges per se that are at issue - rather the level of charges we will be looking at and discussing with the OFT going forward. "We take issue with the OFT´s view and believe the charges are an accurate reflection of the costs involved in processing late payments."
Between 10% and 15% of people are hit by the credit card charges, incurring a collective bill of around £400m a year. But providers argue they are easy to avoid if customers stick to the terms and conditions on their accounts, and set up direct debits to pay at least the minimum on their statements each month.
Asked to explain how Bank of Scotland and Halifax could charge £25 for something other providers charge £10 for, the bank said it passed on the full costs of dealing with such defaults, while competitors did not.
Over-50s specialist Saga disputed that lower charges automatically meant inferior products. Its credit card has a £10 late payment and over the limit fee, yet still manages to offer a balance transfer rate of 3.9% and, unlike providers such as Bank of Scotland, RBS, and Barclaycard, Saga does not charge its customers an exchange commission for purchases made on mainland Europe.
Despite the OFT investigation and a similar one by the Treasury Select Committee, some banks have been increasing the level of penalty charges they apply to current accounts. Lloyds TSB, which has raised its fee for going overdrawn on a current account once this year, will already increase it by a further £5 to £30 from today - a 33% increase in the amount it charges in six months. Halifax has also raised its unpaid item charge from £35 to £39 in recent months.
Last week, consumer group Which? called for the investigation into charges to be extended out from credit cards to encapsulate those applied to current accounts as well. But an OFT spokesman told Scotland on Sunday that current accounts and any charges applied to them were a matter for the Financial Services Authority.
Earlier this month, Stephen Hone, a law student at the University of Plymouth, had a judge rule in his favour after he decided to sue his bank, Abbey, over charges applied to his current account. He used the Unfair Terms in Consumer Contract Regulations 1999 - the same piece of legislation now being held up as a threat to the eight credit card companies by the OFT. However, the judge´s ruling was made not on the merits of Hone´s argument but because Abbey failed to submit a defence.
In a statement, Abbey said: "We have no record of receiving any court claim with regard to this particular case, and therefore we didn´t, unfortunately, have the opportunity to defend our position. The judgment was obtained by Mr Hone by default only, because Abbey never received the court claim form."
Which?´s spokesman said: "Obviously there will be different circumstances and it is not a blanket response, but our advice would be to challenge these penalty charges where you can."
For this and other news items please visit www.debtscotland.com. By registering on the site you will find a host of debt recovery and credit control tools in the free credit resources section.
Stephen Cowan
Yuill & Kyle, debt recovery & credit control lawyers, Scotland
79 West Regent Street, Glasgow G2 2AR
scowan@yuill-kyle.co.uk
Direct Dial: 0141-572-4251
www.debtscotland.com
www.ykcreditcheck.co.uk
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