Credit Card Terminal

Credit Card Charges Set To Fall
By John Edmond

In the UK the 8 largest credit card providers have been ordered
to reduce their charges, for default and late payment, by
between 40 and 50%. The current late payment charge by most
major issuers is between £20 - £25 ($30 - $40 US) and the have
been instructed to slash that down to £12 -£15 UK ($18 - $20
US).

The UK Office of Fair trading, who have been investigating
credit card charges for the last few months, stated "The OFT
considers that, in a consumer contract, a default charge is
likely to be disproportionately high if it is more than a
genuine pre-estimate of the damages that the card issuer would
win in court if it sued the cardholder for breach of contract,"
adding "The OFT's provisional view is that the levels of the
default charges imposed by the credit card companies need to be
reduced in order to be fair."

In the opinion of the OFT the current charges of between £20
and £25 excessive and possibly illegal and has given the card
issuers 3 months to respond.

Whilst the current ruling is provisional it is expected that
the final ruling will apply to all credit card issuers in the UK
and, if necessary, the OFT will take a test case to the UK
courts for a ruling forcing the banks to comply.

Once applied to credit cards the decision will also apply to
overdrafts, store cards and mortgages.

Estimates on what this will cost the banks vary from 400
million to 1 billion UKP - up to 50% of the profits earned on
credit cards. In recent results the big 5 banks in the UK
declared record overall profits of £33 billion, so they can
easily reduce these charges.

Matt Barrett, the former chief executive of Barclays, famously
once told MPs that he didn't use credit cards because they were
"too expensive". Whilst the ruling is intended to reduce costs
to customers it's likely that the banks will other find ways to
keep the costs high.

It is already clear that lenders are not great fans of interest
free balance transfers as most have applied a 2 - 3%
administrative charge. Expect this trend to continue and
possibly for the interest free transfers to disappear
altogether.

Expect an increase in the number of cards carrying an annual
fee and for the annual fee on current cards to increase. Further
adjustments could include the disappearance of cashback and a
reduction in free services, travel insurance, flights, holidays
and other promotions.

Though this ruling applies to the UK only, once it is enforced
card issuers around the World will be under pressure to follow
and countries with strong consumer protection legislation may
follow the OFT's lead.

This is therefore an ideal time to review your current credit
cards and take advantage of offers while they last.

If you have a credit card debt, which is rolled over each
month, take advantage now of the interest free offers currently
available. Read the small print, some carry a 2-3% charge, avoid
these as there are still a few interest free transfer offers
which do not have the administration charge.

If you repay your cards in full each month take a look at the
cards offering cashback and get a discount on your purchases
while it still exists.

If you have a balance which will take years rather than months
to repay look at the permanent low interest cards or even better
look at debt consolidation and move the debt to a low interest
loan or mortgage.

Credit cards are an expensive form of long term borrowing. This
ruling, whilst welcome, may herald the start of a restructuring
of credit cards and where they will end is very uncertain.

About the Author: John worked for many years in insurance and
finance and now writes on credit cards and debt management. For
advice on credit cards and debt management go to
http://www.card-debt.net or
http://www.consolidation-loan-advice.info

Source: http://www.isnare.com