Thread: Summary of Exactly What the OFT Said & The 'New' £12 Threshold

Hi

For those who ‘have believed but not actually seen’, I thought it might be of interest to CAG members to see extracts of exactly what the OFT said in their Press release 05/04/06.

In particular, we should take note of the fact that although the threshold has been reduced to £12, it doesn’t mean that the Banks can automatically charge a flat fee of £12 (which is what they think they can - and are doing)

So if you are apprehensive of taking the banks on, get some reassurance from what the OFT said, and if you are still not sure, then get a cuppa, put your feet up and read the House of Commons Select Committee on Treasury Second Report <House of Commons - Treasury - Second Report > Paragraphs 48 - 51.

and / or

The complete OFT report ‘Calculating fair default charges in credit card contracts’ can be found on their website: <www.oft.gov.uk/News/Press+releases/2006/68-06.htm>

Current credit card default charges unfair

OFT sets threshold for intervention

68/06 5 April 2006

These (penalty charges) are charges in standard credit card contracts for a failure to pay a minimum payment on the due date, exceeding a credit limit or a failure to honour a payment made.

Where credit card default charges are set at more than £12, the OFT will presume that they are unfair, and is likely to challenge the charge unless there are limited, exceptional business factors in play. A default charge is not fair simply because it is below £12.

A default charge should only be used to recover certain limited administrative costs. These may include postage and stationery costs and staff costs and also a proportionate share of the costs of maintaining premises and IT systems necessary to deal with defaults.

A fair default charge should not exceed a reasonable estimate of certain limited administrative costs which the credit card issuer reasonably expects to incur as a result of default.

Only a court can finally decide whether a charge is unfair or not. The OFT has today set out a statement of its view of the law. This has not generally been accepted by most of the eight credit card issuers.

The OFT is not proposing that default fees should be equivalent to the threshold, and a court will certainly not consider that a default fee is fair just because it is below the threshold. Where there are exceptional business factors, so that the presumption that a default charge over £12 is unfair is not applicable, this does not necessarily mean that the current level of the default charge is consistent with the OFT's interpretation of the requirements of unfair contract terms legislation. But for example, where a card issuer has a policy of requiring customers to pay minimum monthly repayments by direct debits, such as that operated by Egg, and offers credit cards only to customers that satisfy a relatively high scoring requirement it may be able to set a fair default fee at a level above the threshold.

So- Go for it. The Law is on your side!

PeterG


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Thanks for the comments Welly.

However, for those who might wish to look at other options by which they might improve their financial standing simply by being aware of what they might be able to legally claim, simply input 'Bank charges' into Google Advanced Search, Exact phrase, press Enter and peruse the results!

In particular, I recommend a look at Martin Lewis' brilliant website, 'www.moneysavingexpert.co m' whereby you'll find not only a significant and superb article on the recovery of Bank charges courtesy of CAG!!!, but also a host of other ways by which you may well discover other benefits to which you are fully entitled but which you never knew existed.

PeterG