In the past three years credit cards have put up their charges for late payment by as much as 40%*. Customers who breach their credit limit, pay late or bounce a cheque paying their account, now face an average charge of £22 each time they do so.

The average value of a bounced cheque has risen by 37% during the year to October 2005 and now stands at £22.68. The average value of a late payment has risen by 38% during the year to October 2005 and now stands at £20.93 whilst the average breach was £22.79 up 40%.

All this will add fuel to the investigation being carried out by the Office of Fair Trading who is looking at charges being levied by credit cards.

There is no doubt that credit card operators are justified in imposing charges but we doubt that the true cost of dealing with offending clients are anywhere as high as the penalties they are charging. After all the follow-up letters and procedures are fully automated with little if any, human intervention. In this context it is doubtful whether charges greater than £15 are warranted for the minimal cost actually incurred by the operators.

We know that card operators can handle these cases for £15 as some are already doing so – in fact some only charge £10 for a late payment or payment default. Having said that, the majority hit you for £25.

Within their investigation, the Office of Fair Trading is also examining the interest rates charged by credit cards. There is already signs that they will take action to chop the excessive rates charged by some store cards whilst the main line providers such as Barclaycard, have been moving their rates up in a move to offset the higher levels of bad debt experienced in 2005.

This all points to the fact that you need to review your credit card arrangements on an annual basis. Use the Internet to find out if you can better your current arrangements. The savings could be significant.

* Source: Credit Cards in the UK 2005 issued by Defaqto, the financial researcher.

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