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Credit card lenders have been illegally taking more than pounds 300m a year from customers in late payment charges and other penalty fees, the Office of Fair Trading ruled yesterday.

The regulator gave the industry until the end of next month to respond to its proposal to limit all such charges to a maximum of pounds 12, less than a third of the penalties currently levied by many leading lenders.

The ruling follows a series of court cases in which credit card borrowers and bank customers have successfully challenged the level of late payment fees they have been charged.

Consumer protection laws prevent lenders charging more than the actual costs they have incurred when processing late payments or credit limit breaches. But credit card lenders have routinely charged pounds 20 or more for customers who miss repayment deadlines on their accounts, or go over their credit limits.

Abbey and Aliance & Leicester charge pounds 25 for such failures, for example, while Barclaycard, the UK's biggest credit card lender, charges pounds 20.

John Fingleton, the chief executive of the OFT, said the regulator believed charges of this magnitude were illegal. "We expect credit card issuers to adjust their default levels quickly," he said. "We have not ruled out future legal action if the market does not respond positively."

The regulator said it would impose a new threshold on the credit card industry, where all penalty fees in excess of pounds 12 would be assumed to be unfair. The OFT also warned that even charges set at or below this cap would not necessarily be legal.

In addition, the regulator warned the same principles would apply to bank charges, though it has yet to formally set a cap for this sector, where penalty fees for unauthorised overdrafts and bounced cheques tend to be even higher. Lloyds TSB, for example, charges pounds 30 a day for unauthorised overdrafts, while Halifax charges pounds 30 every time a customer tries to process atransaction for which he or she does not have sufficient funds.

Consumer groups were triumphant after the ruling. Emma Bandey, of Which?, said: "The OFT has finally officialy acknowledged what Which? has been saying for years - that credit card com-panies have been fleecing their customers with unfair, sky-high charges."

# posted by Medical Information : 3:42 AM