Card firms cut penalty charges - but there's a catch

By Naomi Caine Jun 19, 2006

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Good news: a number of credit card firms have cut their penalty charges. MBNA, for example, has cut the fine for customers who breach their credit limit, or who miss or make a late payment, from £25 to £12. Barclaycard, HSBC, Lloyds TSB, HBoS, Egg and Cahoot have also pledged to reduce fees, says Helen Loveless in the Financial Mail on Sunday. The cuts follow a ruling by the Office of Fair Trading (OFT) in March, warning card firms that the penalties were “legally unfair”.

But here’s the bad news: Barclaycard will raise the interest rate on purchases by between 2% and 5% to a maximum of 29.9%. It’s known in the business as the “waterbed effect”, but you might call it robbing Peter to pay Paul.

Still, at least Barclaycard is being upfront about its response to the OFT, says Rupert Jones in The Guardian. Other firms might be more sneaky about recouping the money.

 

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Published in Economics | More articles by Naomi Caine

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