The OFT Ruling
In 2006 the Office of Fair Trading investigated the charges being imposed on customers of credit card companies. In its report, the OFT said that many of their default charges were unlawful, as they constituted unjust enrichment. It stated that it would act upon receiving notice of any charge over £12 as a penalty, and therefore unlawful . However, the report also specifically stated that the OFT did not necessarily consider £12 a fair charge, and that this would be up to a court to determine. It suggested that the £12 "cap" was intended as an initial step towards fair practice and compliance with the law. Whether or not an individual charge constituted a penalty fee would be based on the established legal precedent that the only cost recoverable would be actual costs incurred.
The credit card companies have so far failed to produce evidence of their actual costs to the OFT, instead insisting that their charges are in line with policy and information provided to customers. A report in produced in October 2006 by the Competition Commission on banking in Northern Ireland stated that "harges are a significant source of revenue for the banks on . said that increased unauthorized overdraft fees were part of the strategic imperative to turn the PCA into a profitable business over time."
Many customers have acted upon the ruling of the OFT, in particular as the report explicitly states that while the investigation was into default charges levied towards credit card customers, there is no reason why the same principle should not extend to personal banking. Some have successfully demanded the return of penalty charges for returned cheques, direct debits and unauthorised overdraft charges. Campaigners argue that the current regime of fees is well beyond the cost of sending a computerised letter if indeed any correspondence is sent at all. Frequently the charges are applied without any notification to the account holder other than when it appears as a transaction in their bank statement.
Read more about this topic: UK Default Charges Controversy
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