One year on from the OFT ruling on credit card penalty fees and the industry has not lost a penny

Increased purchase APRs and cash withdrawal rates alone generated £815 million: almost triple the £300 million lost since the OFT capped credit card default charges at £12

Average APRs have increased from 15.19% to 16.60% for purchases and 20.37% to 23.01%3 for cash withdrawals uSwitch.com predicts that the current account market will pick up the 'claw back baton' over the next 12 months Almost one year on since the Office of Fair Trading (OFT) capped penalty fees on credit cards at ?12, and uSwitch.com, the leading impartial price comparison and switching service can now reveal exactly how credit card providers have recovered the ?3002 million of lost profits that was deemed "unlawful" on 5 April 2006.

Over the past 12 months, cardholders have been subjected to constant changes to their terms and conditions in an attempt by providers to boost their margins and make up for lost profits.

Some of the changes which have been introduced may have gone unnoticed due to their complexity, with credit card providers delving deep into small print in the terms and conditions which many consumers may not fully understand.

The most obvious changes, such as the increase of purchase APR's from 15.19% to 16.60% over the past year have been plain for all to see, generating an additional estimated income of £673 million4.

The more complex changes range from the order of repayment that is applied to payments on a credit card balance right down to Natwest's, Mint's and The Royal Bank of Scotland's latest change to what they classify as a cash advance - from 1st May they will treat purchases of gift vouchers, gift cards and other 'stored-value' cards as a cash advance or substitute.

In addition, electronic money transfers such as money orders or transfers to e-money accounts and transactions for payments made to other credit cards, loans or hire purchase agreements will also fall into this category.

Several providers including HSBC, Egg and MBNA have also changed the way that online gambling transactions are treated.

Again, these providers will consider this transaction as a cash advance which allows them to a higher cash rate from the day the transaction is made, with no interest free period.

Other changes include: 22 major card providers have increased their standard purchase APRs.

Average cash (per annum) rates have risen by more than 2.19%, from 18.08% to 20.27%.

The equivalent of this in APR terms is 20.37% APR to 23.01% APR3, a 2.64% increase.

29 card providers have increased their cash withdrawal fees from an average of 1.9% or a minimum of ?2.20 to an average of 2.3% or a minimum of £2.505.

Monthly fees of £2 per month have been introduced by two providers, Co-operative Platinum Visa and Northern Rock Base Rate Visa.

'In credit balance' and 'low usage' fees have also been introduced by two major providers.

MBNA customers that have not used their credit card atall for one year and have a positive balance will incur a one off debit of up to ?10.

Some Lloyds TSB customers that displayed 'low usage' will incur a one off £35 fee.

Rise in cash rates Consumers have seen cash rates - the per annum interest rate charged for cash advances - increase from an average of 18.08% to 20.27%per annum (pa) since April 2006, an increase of more than two percentage points.

The equivalent of this in APR terms is 20.37% APR to 23.01% APR, a 2.64% increase.Overall, 33 of the major card providers have increased cash rates and just this month, Egg Visa increased its cash rate from 22.9% to 23.9% pa, while Lloyds Platinum Mastercard/Visa is set to increase its rate to 27.9% pa on 1st April.

To put this into context, since April 2006, 6.6 million6 consumers have spent £1.23 billion7 in interest on cash withdrawals compared to £1.1 billion8 12 months ago (an increase of £142 million) whilst remaining unaware of the increase in interest rates.

Balance transfer fees creep up and caps disappear Over the last 18 months, balance transfer fees have become standard practice among credit card providers.

Some providers charge as much as 3% of the balance transfer sum and every provider has removed the maximum cap that can be charged so that there is now no limit.

For example, Halifax has increased their fee from 2% to 3%, while Abbey and first direct have increased their fees from 2% to 2.5%.

In monetary terms, to transfer a balance of £3,000 onto a Halifax card, now costs ?30 more - a total of ?90.

New fees More 'innovatively', Lloyds TSB has introduced a £35 annual fee for customers that do not use their credit card regularly.

With a market share of 7.3% of UK credit card customers this will impact just over 51,000 customers and generate an income of £1.799 million in the one month alone.

MBNA has written to all customers that have both a positive credit card balance, and an account that has been inactive for over a year.

These customers can either claim the cash back, give it to charity or face a one-off debit from the positive balance of up to £10.

In addition, two providers - the Co-operative Platinum Visa and Northern Rock Base Rate Visa - have announced that they will charge a monthly fee for their credit card, of £2 per month.

Nick White, Director of Financial Services, at price comparison and switching website uSwitch.com said: "In many ways, credit card providers have squeezed every last penny out of consumers to recover their lost millions and have more than recovered it over the last year! What is more interesting is whether or not the current account market will continue to pick up the 'claw back baton' and develop a similar landscape to that of the credit card industry over the next 12 months".

""Introducing annual charges for current accounts would be a very obvious move but not one that we think will become widespread in the imminent future.

It is far more likely that overdraft rates will increase and that other banks will follow Citibank's lead by introducing automatic current account upgrades.

As with First Direct, there is also the option to increase the minimum amount that must be paid into a current account each month, or incur a monthly fee if customers can't meet this." Nick White concludes: "Over the last 12 months consumers have been inundated with extra fees and charges alongside the increases to cash rates and APR's.

The question surely is now - when will providers stop? There are still some very competitive credit card deals available but consumers must be savvy, shop around and compare the market and be on top of any changes that are made to the small print of their deal.

"In some cases, letters from banks which are supposed to explain these changes to the terms and conditions of a credit card can be difficult to understand so it's hardly surprising consumers are slightly confused as to exactly what the changes are".

"If consumers do find themselves in this position, we would advise them to contact their credit card provider to clarify exactly how these changes will impact them financially." www.uswitch.com For more information visit www.uswitch.com or call 0800 093 06 07.

Back to top