Credit card companies use stealth charges

MONDAY, SEPTEMBER 18, 2006

Since penalty charges on credit cards were capped in April, the industry has lost £300 million a year, according to a price comparison website. uSwitch reports that prior to the decision by the Office of Fair Trading (OFT) to limit charges to £12, credit card companies were making £679 million a year from customers making late payments and going over their credit limit, a figure now down to £379 million.

According to uSwitch, however, companies are attempting to recoup the money in other ways, such as increasing balance transfer fees and changing the order of repayments so cardholders pay off the amount with the lowest interest rate first. "While the OFT's decision to force credit card providers to reduce default charges was undoubtedly a victory for the nation's 30.6 million credit card customers, the card issuers' responses elsewhere have not been so welcome," said Nick White, head of personal finance at uSwitch.

He continued: "Unfortunately, these developments come as no surprise and will no doubt continue to happen across the credit card industry. They are unlikely to write off the additional £300 million a year generated by the old levels of default charges." Many people find that paying off their credit cards with a debt consolidation loan is a better way to manage their finances.