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The Office of Fair Trading (OFT)

The OFT has a duty to investigate and take action in respect of suspected breaches of the UTCCR. It started an investigation into the particular issue of default charges on credit cards (not current accounts) in the summer of 2004. It made a statement in autumn 2004 that its initial view was that these charges were “unfair” and asked the banks to justify the charges.

The OFT investigation rumbled slowly on. When asked by the media or by campaigners on the progress of the investigation, it was always very circumspect saying that it was bound by a duty of confidentiality whilst the investigation was going on. However, it did ask campaigners to provide to it any evidence that was relevant and it did often respond saying that our submissions were “helpful”.

In July 2005, the OFT pronounced that it felt that the default charges were “unfair” and gave the banks 3 months to respond. This meant a deadline of late October. The OFT did not stick to this deadline and it was not until April 2006 that it finally pronounced. Its statement of 5 April said that it considered that any default charge in excess of 12 was unfair and that it might take court action to enforce this view. But it would not take action if the charge was less than 12. It gave the banks until 31 May to do something about it. It also said that the same principles that applied to credit cards applied to current accounts. (I think that this extension of their ruling was a result of the pressure applied by our consumer campaign. Otherwise the OFT might have restricted its report to credit cards.)

The OFT press release of 5 April can be seen at:

Within that press release is a link that enables you to download the complete report.

The OFT does not in itself have the powers to compel the banks to take action. It acts as a kind of prosecuting authority. What it has said is that if the bank do not act, the OFT will go to the High Court and present its case and the Court will then make a ruling that the charges are “unfair” and this ruling would then be binding. The banks could, of course, go to court and defend their position. However, unsurprisingly, the banks have chosen not to go to court. The last thing that they want is a public airing of what it really costs them to bounce a direct debit or allow an unauthorised overdraft. This would show that the any charge more than 1-3 is likely to be unlawful. So, it would seem that the 8 banks affected by the OFT investigation did reduce their penalty charges on credit card accounts to 12 but they were remarkably coy about this news. Barclaycard seems to have been the only bank that even issued a press release announcing the cut in charges; the other banks seem to have merely told a few media contacts about reducing their charges in as low key a manner as possible. The remainder of the banks seem to have followed suit, albeit again as quietly as possible.

The OFT issued a press release on 7 September saying that the credit card issue was now resolved: “in view of the reduction in charges across the market, the OFT is satisfied that no further intervention is warranted in this area at this time and that this change has brought about substantial benefits for consumers.” In other words, no undertakings have been made by the banks, no court ruling has been made to establish the legality of the charges, merely it is not as bad as it used to be.

The OFT press release of 7 September can be seen at:

I have won a refund from HFC Bank (a subsidiary of HSBC) for a default charge set at the new 12 level. The banks are still not prepared to go to court to defend their position even at the new level.

The OFT press release also said that it was turning its attention to bank current accounts. It expects to take 3-6 months on a “fact-finding exercise” at which stage it will decide whether a more detailed investigation is needed. There is no explanation as to why it should take so long just to decide whether it needs to do anything when it has previously said that the same principles apply to current accounts as to credit cards and it has said in letters to me and to Andrew George MP that after concluding the study into credit card default charges, an investigation into other issues such as current accounts should be fairly swift: “they can then be applied relatively simply and swiftly to similar default charges where they may be problems” (letter to me 6 September 2005).

The proposed OFT investigation does not intend to consult consumer groups who have been at the forefront of this campaign; but it will work with the BBA!!

Just over 6 months into the 3-6 months fact-finding exercise, the OFT has (surprise, surprise) decided that the whole issue of bank charges is very complicated and there is no "quick-fix" solution, so it will have to take a long time to look at it. In other words, yet again, the OFT has not got the guts to do anything and it desperately wishes the whole problem would just go away.

For a read of its pathetic news release, see:

OFT statement 29 March 2007

Why does the OFT pussyfoot around with the banks?

The OFT's spineless attitude towards banks is put into sharp contrast when you look into the OFT's actions against other, smaller companies. On at least three occasions, the OFT has investigated the question of penalty charges in consumer contracts and on each occasion has forced the offending companies to give undertakings to rectify their contracts. These three cases can all be found within an OFT report – "Unfair contract terms bulletin 21: Case reports July-September 2002" – issued in May 2003.


Case 4) Dampcure-Woodcure/30 Ltd. Original term in the company's conditions of contract, term (w) - under the UTCCR schedule 2, 1(e) in the words of the OFT report "had the potential to impose a high financial penalty if payment was not received within seven days of the date of the invoice". The term was "revised to make clear that interest will be charged at the rate of 4% above a high street bank rate per annum if payment is not received within seven days of the date of invoice."

Case 15) Kids of Wilmslow Ltd. t/a kidsunlimited. Original term in the company's standard terms and conditions, term (7): "provided for the supplier to charge interest on unpaid fees at an excessive rate above bank base rate" this to be "amended so interest charged on unpaid fees is calculated at 3% per annum above the bank base rate". "Also unclear as to how the interest would be charged." This was amended so that "revised term states that interest is calculated on a daily basis". And finally, the original term "allowed the supplier to charge an administration fee of 10 per letter for letters regarding unpaid fees." This term was "deleted".

Case 18) Parkers Estate Agents. Original term in company's terms of business regarding commission "had the potential to allow the estate agent to charge a penalty fee for late payments." This was "revised to reflect the company's practice of charging the higher of 8% per annum or the current County Court interest rate on late payments."

What is absolutely clear is that the OFT understands exactly why penalty charges imposed by banks are unlawful and that, if a small, back-street company had terms such as those in high street banks' contracts, the OFT would have ensured that the company gave undertakings to change them. One small company charges 10 to send out a letter regarding unpaid fees and the OFT forces them to stop doing it. A bank charges 35 to do the same thing and the OFT suggests that it would be OK to charge 12!! One small company is forced to reduce the interest that it charges on late payments to 4% above base rate; a bank is allowed to charge 25% above base rate for "unauthorised overdrafts". One law for the small company; another for the multinationals.

Why does the OFT does not take the same, robust approach towards Britain's high street banks?

Either the OFT is petrified of the banks, or the government is petrified of the banks and has leant on the OFT to go easy on them.

If you think that the OFT is a bunch of spineless wimps, ask your MP to take the matter up with the appropriate Minister.


The above information about the OFT's actions was brought to my attention by the Govan Law Centre website at So a big thank you to whoever did the research to identify those cases.

For latest on OFT test case, see OFT test case.

Published and promoted by Bob Egerton, TR2 4RS