Credit Card Charges Higher

Credit Card Charges Higher

According to Moneyfacts, credit card customer face higher charges since the Office of Fair Trading (OFT) capped default fees.  In April 2006, the OFT said that default charges on credit cards were too high and suggested capping these at £12.  In the months that followed, lenders cut these charges to £12 but in an attempt to recoup lost revenue they hiked interest rates and charges elsewhere.

The average purchase rate on a credit card two years ago was 14.9 per cent, today it stands at 16.4 per cent.  Moneyfacts used an example of a balance of £5000 repaying just 2.5 per cent a month will end up paying an additional £755 in interest from the 1.5 per cent increase in purchase rates.  

Our view

Intervening on market competition appears to have backfired here.  Normal competition means that cards stay competitive or lose customers.  Interfering with competition can deliver problems as has been demonstrated here.

Useful links:

Request expert financial advice now

Purchase guidance on financial planning in the Money Shop 

Back to News Summary