Credit Card Companies Acting Illegally on Default Charges

The OFT reported yesterday that many credit card default charges are illegal - confirming the view taken by Debt on our Doorstep and the Bank Charges Action Group for the past two years. In a statement, the OFT calls for immediate reassessment of charges where these are in excess of £12, and indicates that it will consider charges above this level to be unlawful unless there are exceptional circumstances. Charges below £12 may still be unlawful, however and the OFT sets out the legal position as follows:

'We expect card issuers to recalculate their default charges in line with the principles in our statement to achieve consistency with unfair contract terms legislation. We have decided that, as a provisional step, it is appropriate to give priority to addressing default charges which exceed a simple monetary threshold of £12, in line with our duty to use our resources to tackle contract terms that have the potential to cause the most serious harm to consumers. We are not suggesting that default fees should be set at £12, and a court will certainly not consider that a default fee is fair just because it is below the threshold.'

Whilst the move is welcome, Debt on our Doorstep called for additional measures to be taken against the industry as follows:

(i)Immediate reimbursement by credit card providers of all charges in excess of £12 over the past 6 years to all customers affected on the basis that these have been illegal penalty charges and are recoveable in law;

(ii)Investigation by the OFT as to further reimbursement necessary on the basis of their own opinion that charges below £12 may have been illegal;

(iii)Extension of the ruling of the OFT opinion and investigation to all overdraft and personal loan default charges and for similar actions as above to these financial services;

(iv) For the OFT's guidance on fitness for a consumer credit licence to include a requirement that lenders charge only the true costs of default and not make illegal penalty charges;

(v) For the DTI to insist on limitations to default charges to be included in the proposed EU consumer credit directive to protect current English law on this matter.

Damon Gibbons, Chair of Debt on our Doorstep commented:

'The OFT have belatedly concluded what we and the Bank Charges Action Group have been saying all along - credit card companies have been profiteering illegally. We now want to see action to ensure that customers ripped off over the past 6 years are fully reimbursed, and that this action is extended to overdraft and personal loan charges. This ation should be taken by the regulator, relying on individuals to take action in the courts when there has been such a widespread illegal operation as this is simply not on.'

Debt on our Doorstep has today made a formal complaint to the OFT concerning its failure to take effective enforcement action on behalf of consumers.