Alliance & Leicester customers who take the bank to the Small Claims Court to recover unfair bank charges are now being asked to take their business elsewhere.

Customers are increasingly aware that the level of charges levied by banks when overdrafts are exceeded, or payments returned, are considered unfair. The Office of Fair Trading (OFT) ruled in April that any charge over £12 would automatically be classed as unfair, warning banks and credit card companies that they could face legal action if they failed to comply.

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.

The Office of Fair Trading has finally gotten tough with credit card companies overcharging customers to the tune of £300 million per year through unfair and excessive default charges.

The charges are made by the credit card companies when you go over your credit limit, pay late or fail to honour a payment. By law the charges are supposed to cover the actual costs, but the OFT has found that companies are in fact profiteering by imposing high fees that way exceed the true cost of managing the account.

The move is a further attempt to force the industry to start playing fair with borrowers. Hidden charges throughout the industry subsidise incentives and special offers that lenders use to win over customers. Excessive default charges means that those who can least afford them are paying for card companies to give interest free periods and other incentives.

If you are considering a loan from Moneyback Bank, we recommend you take the rate and forget the money back offer. We found that shopping elsewhere for your loan protection insurance could get you a similar product for less than half the price.

Moneyback Bank is a product of Alliance and Leicester. They offer unsecured personal loans at a competitive rate of 5.7%. The "money back" offer only applies if you buy their loan protection insurance. We were quoted for a £10,000 loan over 5 years, and even with the money back the insurance came to £2250. We found insurance providing a good level of cover elsewhere for £929.