The amount that credit card and store card customers are charged when they default on a payment is to be reduced as a result of action taken by the Office of Fair Trading.
The OFT approached Clydesdale Financial Services Limited – which is owned by Barclays – and asked them to ease the penalty on customers for failing to meet a repayment on their credit and store cards, and it has now brought the charge down by almost half from £22.50 to £12.
Prompted into action by consumer complaints, the OFT said that the charges have previously been set at a level which was much higher "than was considered fair". This is one of various actions taken by the OFT on unfair credit card charges
and many people have been successful in reclaiming credit card charges
from their provider.
Mike Haley, head of consumer protection at the OFT, called the decision "a great result for consumers", and said that the OFT is "very pleased that Clydesdale Financial Services has decided to reduce its charges."
The OFT asked credit card
and store card providers to cap the excessively high rates at £12 in April 2006, having declared that they were disproportionately high, but in order to recoup the lost revenue from the default charges, providers have been hiking rates and charges elsewhere, says Moneyfacts.co.uk, calling into question the effectiveness of a cut in default charges.
Michelle Slade, analyst at Moneyfacts.co.uk, comments: "In April 2006 the average purchase rate on a credit card was 14.9 per cent; today this has jumped to 16.4 per cent. Previously whereas only a select number of customers were being penalised, now all borrowers are paying the price.
"For any customer who are paying their bill in full each month, the rate increase will have no impact, but with many households struggling with increasing financial pressures, those who only repay the minimum will be hardest hit. Anyone with a balance of £5,000 repaying just 2.5 per cent per month will end up paying an additional £755 in interest from the 1.5 per cent increase in purchase rates."
She added that while rates and charges on credit cards have increased, "there are still good deals to be found for those with a good credit history.
"Shop around and find a card that best suits your needs, whether it's a balance transfer deal if you have an existing debt on a card, or a card with an incentive such as cashback if you pay your balance off in full."
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