In recent days, critics of the UK Office of Fair Trading’s (OFT) forceful new approach to charges in the financial services sector have suggested that attacking banking penalty fees will ultimately result in the death of free banking. And it seems the validity of this argument has been enhanced by the current experience in the credit card arena.
It has only been a matter of weeks since the OFT imposed a cap of GBP12 on credit card penalty fees, arguing that the industry was unfairly overcharging customers who incurred the penalties. However, the card issuers have already started to fight back by reorganizing their business to increase income from other sources.
According to comparison website uSwitch, the OFT cap on penalty charges will reduce the income of issuers in the UK by GBP300 million a year, a drop that they are likely to want to recover by other means. Typical moves could include increasing the set fee on balance transfers, increasing interest rates, charging for statements and reordering payment priority rules so that they generate more income.
While the OFT move was a victory on paper for the consumer, uSwitch has warned that credit card users will have to be even more vigilant from now on.
