Strong warnings from the Office of Fair Trading (OFT) have caused Barclaycard, HSBC and Lloyds TSB to reduce their credit card penalty charges by almost half.

On 5th April, the OFT announced that it considered the high penalty charges made by many credit card companies to be unfair and illegal. It warned companies that if they would be defending their charges in court if they didn't take swift action to bring the charges down to a maximum of £12. Penalty charges are made when a borrower misses a payment date or exceeds their credit limit, and should only be set to cover certain administrative costs.

Yesterday the BBC reported that Barclaycard, HSBC and Lloyds TSB had all reduced their penalty charges by almost half from £20 to the new £12 threshhold.

Other credit card companies are not so quick off the mark. We visited the Virgin Credit Card and the Amazon.co.uk Mastercard. Virgin excitably promote "0% p.a. - that's 0.0000% a month on card purchases for 5 months from account opening", but you might want to note the swingeing £25 fee if you don't quite make your payment on time.

Amazon.co.uk is not more generous. Their Mastercard will see you with a £15 gift voucher to spend on the website, which is only just more than half the £25 you'll be paying should you inadvertently stray over your credit limit.

Industry Under Fire

The credit card industry has been under fire for some time. Despite staggering amounts of credit card debt, companies continue to attract new customers with offers subsidised by a range of measures, many of which are being paid for by its most vulnerable customers.

The Royal Bank of Scotland are expected to follow the lead of Barclays, HSBC and Lloyds TSB and the OFT will be watching with interest to see response from other large lenders such as Halifax Bank of Scotland and MBNA.

Retrospective Claims

The fact that the OFT is considering the charges as unfair poses the question of charges already made being challenged by borrowers. If you have been on the receiving end of default charges in excess of £12, then now would be a good time to drop a line to your bank asking for repayment of the difference. If you are met with silence or a polite refusal, ask the bank to reconsider and be sure to drop a copy of your local to your local Trading Standards office and the Office of Fair Trading.

The OFT has also indicated that other default charges will soon be investigated, including those for bank accounts, mortgages and store cards.

More Information

Current credit card default charges unfair OFT Press Release

Advice

Credit cards are generally the most expensive way to borrow money. They can be a great tool for everyday spending, and offer additional protection when making large purchases. If you are looking to borrow money, however, look for more competitive personal loan products or considering putting off a purchase until you are able to pay for it.

If you are worried about your finances and need support, contact your local Citizens Advice bureau, National Debtline or the Consumer Credit Counselling Service. All of these organisations will give you excellent free and impartial advice.