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Title: Credit Card Charges Set to Fall

Author: John Edmond

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

The UK Office of Fair trading, who have been investigatingcredit card charges for the last few months, stated "The OFTconsiders that, in a consumer contract, a default charge islikely to be disproportionately high if it is more than agenuine pre-estimate of the damages that the card issuer wouldwin in court if it sued the cardholder for breach of contract,"adding "The OFT's provisional view is that the levels of thedefault charges imposed by the credit card companies need to bereduced 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 cardissuers 3 months to respond.

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

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

Estimates on what this will cost the banks vary from 400 millionto 1 billion UKP - up to 50% of the profits earned on creditcards. In recent results the big 5 banks in the UK declaredrecord overall profits of £33 billion, so they can easily reducethese charges.

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

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

Expect an increase in the number of cards carrying an annual feeand for the annual fee on current cards to increase. Furtheradjustments could include the disappearance of cashback and areduction in free services, travel insurance, flights, holidaysand other promotions.

Though this ruling applies to the UK only, once it is enforcedcard issuers around the World will be under pressure to followand countries with strong consumer protection legislation mayfollow the OFT's lead.

This is therefore an ideal time to review your current creditcards 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 currentlyavailable. Read the small print, some carry a 2-3% charge, avoidthese as there are still a few interest free transfer offerswhich do not have the administration charge.

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

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

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

About the author:John worked for many years in insurance and finance and nowwrites on credit card management at Credit Card Debt. Go to Filing for Bankruptcy for another article on credit card debtmanagement.



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