One missed credit card payment, or going overdrawn without
permission, and suddenly a £30 charge can be incurred. Bank
charges can seem to be unfair and too harsh given the frequently
tiny amounts of unauthorized borrowing involved. Now it seems
that the law could be in agreement. Following on from
an investigation launched in October 2003, eight major credit
card companies were told in July 05 by the Office of Fair
Trading (OFT) that the charges they levy for late payments were
"disproportionately high", and that charges needed to be
adjusted to better reflect the costs to them of managing late
payment. Throughout the investigation, the credit card firms
continued to maintain that the late payment charges they imposed
were fair. The legality of these charges are being
questioned by a Scottish law firm, supported by the Scottish
Citizens Advice, who are encouraging consumers to challenge the
right of banks to charge such high penalty fees. With current
high street credit card typical APRs ranging from 5.9% to 29.9%
(source Credit
card comparisons ) this is up to 25.4% points above the
present 4.5% Bank of England base rate, and banks cutting the
interest rates on current and savings accounts information, many consumers see the levels of the
bank charges as an additional means of revenue generation by the
banks through excessive penalization of consumers beyond the
actual costs involved. "The law says if someone
breaches their contract, for example you go over your overdraft
without permission, the bank's only entitled to recover its
actual loss," Mike Dailly, Principal Solicitor at the Govan Law
Centre told BBC Money Box, "If you get an automated letter from
your bank for going over your limit, that costs about 50p. So
why should someone get a £36 letter for that transaction?".
In a previous press release, the OFT stated that it,
"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."
A representative of the British Banker's Association
told the BBC that the banks were not charging customers more
than the actual cost, citing that the charges were to cover
additional costs incurred due to a need for human intervention,
"to extract the item from the day's work, to research the
customer's recent credit profile, and then a managerial decision
as to whether to return the unpaid item." The Glasgow
based Law firm states that, "The legality of bank charges has
yet to be ruled on by a senior UK court but these will not be
enforced if they are found to be 'penalty' or 'unfair' charges."
Until a final ruling is made by the courts, they have drawn up a
letter citing both Scottish and English case law along with the
regulations which apply throughout the UK to help customers get
their charges refunded. Disclaimer: All
information contained in this article, is for general
information purposes only and should not be construed as advice
under the Financial Services Act 1986. You are strongly
advised to take appropriate professional and legal advice before
entering into any binding contracts. Useful
resources: Credit
card rate comparisons Current and savings account
interest rate cuts further information
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