UK banks Barclays and Lloyds TSB are to nearly halve penalties for late payment of credit-card bills after Britain's consumer watchdog said the industry was overcharging customers.
The banks said on May 31, they did not agree with the legal reasoning behind a recommendation by the Office of Fair Trading (OFT), however. Lloyds said it did not accept that the same principles applied to other bank charges and Barclays said it was cutting charges "in order to remove uncertainty" for customers.
The OFT told credit card companies in April to cut penalties for the late payment of bills by about half and signalled other bank charges needed to come down.
Lloyds, Britain's fifth biggest bank and the biggest unsecured lender, told Reuters it will cut its penalty on credit card default to 12 pounds ($22.55) from 20 pounds from June 28.
Barclaycard, which has over 11 million UK cardholders, said it will cut its default charge to 12 pounds from about 20 pounds, effective from August 1. It said from that date it will increase the interest charge for cash advances on its cards.
Other major banks are expected to cut penalties for customers who fail to pay their bill on time, exceed the credit limit or if their payment fails to go through.
They were required to respond to the OFT by today.
HSBC and RBS, the country's two biggest banks, both said they had responded to the OFT and would be continuing discussions with the watchdog, but declined to comment further.
The OFT said in April that excessive penalties on credit card default payments had led to unlawful charges of more than 300 million pounds a year across the industry.
It said charges above 12 pounds would be presumed to be unfair, but estimated cardholders currently paid 20 to 25 pounds for each penalty. The watchdog cannot impose a cap on fees, but said it expected credit-card issuers to adjust their default fee quickly and would take legal action if necessary.
It said the principles in its decision would apply to other bank charges such as those for overdrafts, but the British Bankers' Association said it did not accept the same principles applied and the OFT needed to consult with banks on the issue.
The credit-card decision marks the first major price intervention in the bank sector since measures imposed on small business banking in 2002, but charges are coming under increasing regulatory scrutiny in a number of other areas, notably insurance covering the repayment of loans.