Bank And Credit Card Charges Under The Spotlight

The Office of Fair Trading (OFT) has announced that it is to undertake an in-depth study of retail bank pricing. This comes in response to concerns over current account charges and follows an initial review by the OFT of this area. This will sit alongside a formal investigation into the fairness of current account charges and the OFT has stated its desire to take a strategic approach in examining the fairness of these charges in the wider context of competition in the UK retail banking sector.

The full nature of the study is due to be announced in late April 2007. The OFT set out principles for considering the fairness of credit card default charges in April 2006 and one of the areas covered by the new study will be how these principles might apply to bank accounts.

John Fingleton, OFT Chief Executive, has noted that the issue of current account charges, whilst a concern to banks' customers, also raises wider issues of competition and transparency of pricing. See the OFT's press release for further details.

In a separate development, Which? has launched a super-complaint to the OFT against the way in which interest on credit cards is calculated. The OFT had previously concluded that the annual percentage rate (APR) is the key factor for consumers when determining which credit card is the cheapest option. However, Which? is concerned that consumers cannot compare the cost of credit cards based solely on this factor; the charge customers pay will, in addition to the APR ,depend on the calculation method an issuer uses to establish the interest charged. It has identified 12 different interest calculation methods amongst the top 20 UK issuers and is calling for standardisation and transparency. Which? estimates that the use of these methods account for a consumer detriment of 400M a year. See Which?'s press release for further details.

In its super-complaint, Which? notes that the obvious solution, and (in its opinion) the solution preferred by Government, would be informational remedies. Such remedies might include benchmarking and improved Summary Boxes.

However, together with standardisation, Which? recommends that all credit cards have an unconditional interest free period on new purchases and for daily interest calculation to become more transparent and easier for consumers to understand. Whilst commenting that some interest calculation information has already been introduced, by means of Summary Boxes, it is argued that this is currently...