What CREDIT CARD companies are LEGALLY entitled to

[Maxie]

Credit card charges - often worse than bank charges, but it possible to work out what they can charge you - more simple than bank accounts.

 

Its a credit issue, so the lawful penalty is the interest they have lost - that is it!!!

 

So, an example. Credit card companies are entitled to recover the loss in income in interest lost on what you own them. Now, the credit card holding account(s) will be on commerical interest. The best commercial interest rates at the moment are about 2-2.5%.. However, for easy of example let assume they have a rate of 3.65% - this is what THEY earn of the money they have in the account.

 

Ok, your minimum payment of £100 was due to them on 01/01/2006. However, it wasn't received by them until 05/01/06. 5 days late, you get slapped with a £20 fee. Now, in a year at 3.65% the CC company would earn £3.65. So, being 5 days late they lost 5 days interest, £100 at 3.65% is equal to 1p per day so they they can lawfully recover that 5p and no more. So what about the other £19.95? That the penalty - 400% more than they are entitled to.

[lee6370]

I might of missed the point here, but if i'm late paying my £100 minimum payment, the credit card company will charge me interest at a higher rate than 3.65%, so therefore they are not losing any money.

 

In which case the whole £20.00 is a penalty.

 

In fact i'm actually helping them make more money, but do i get any thanks?

[Maxie]

No you haven't missed the point. If you have a new card with a £100 limit, spend £100 and on 30/01/06 pay £100 which is the due date then you don't get charges anything and have not borrow addtional funds from the company.

 

Say you only pay off £50, they rightly charge you interest, anything from 12% to 39.9% on the more 'adverse cards'

 

Now, say you spend £110, over limit by £10. They slap on £20 or £30 over limit fee - that is an unlawful penalty charge.

 

What they should do, I suspect they will do is say if you go over your limit or are late, we will charge you an interest rate if 40% per day. That would be perfectly legal, as you have borrowed money off them and they are entitled to make something from there loss. But they don't do this - the make a flat, excessive charge.

 

So what I'm saying is if that wanted to defend there actions in court, they would only ever be entitled to the interest, and in the scenario I mentioned, the penalty to you as a customer would be 5p, so they can not enforce the charge. However, if they do away with charges and put every one on a very high, but not excessive interest rate for late payment or over limits, they could legally side step the penalty charges issues.

[alanfromderby]

 

What they should do, I suspect they will do is say if you go over your limit or are late, we will charge you an interest rate if 40% per day. That would be perfectly legal, as you have borrowed money off them and they are entitled to make something from there loss. But they don't do this - the make a flat, excessive charge.

 

 

Not so sure the FSA would see it that way, since they are trying to cut the rates imposed by loan sharks.

[Maxie]

Good point, but I think they would just get away with it at 40%. I recently went to court and argued that an interest rate of 39.9% was excessive and the Judge found against me because he said that as an industry 'standard' that was an accepted rate, albit it an upper standard as as the client had a not perfect credit history he would not have been able to access lower rates so it stood.

 

I won on another point, but that a different matter. if the regulatory bodies are still dithering at taking action about a certain 'main stream lender' providing laons at 177%, 40% seems positively reasonable.

[maestro451]

Maxie, I posted this further down so maybe you didnt see it but it is another point

 

"The leading case of penalty chargesis Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd. It set down four guidelines to decied what and wasnt a penalty.

 

Part of the the 4th guideline being

 

"a clause will be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is greater than that which ought to have been paid"

 

In my situation my minimum payments were only £5-£10, and I got charged £20 for being a few days late, am I right in saying this is clearly a penalty?

[maestro451]

Credit card charges - often worse than bank charges, but it

 

So, an example. Credit card companies are entitled to recover the loss in income in interest lost on what you own them. Now, the credit card holding account(s) will be on commerical interest. The best commercial interest rates at the moment are about 2-2.5%.. However, for easy of example let assume they have a rate of 3.65% - this is what THEY earn of the money they have in the account.

 

Ok, your minimum payment of £100 was due to them on 01/01/2006. However, it wasn't received by them until 05/01/06. 5 days late, you get slapped with a £20 fee. Now, in a year at 3.65% the CC company would earn £3.65. So, being 5 days late they lost 5 days interest, £100 at 3.65% is equal to 1p per day so they they can lawfully recover that 5p and no more. So what about the other £19.95? That the penalty - 400% more than they are entitled to.

 

Im unsure but if you go over your limit do they not charge you higher interest aswell as the charge though so effectively they havent lost anything?

[Maxie]

Maxie, I posted this further down so maybe you didnt see it but it is another point

 

"The leading case of penalty chargesis Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd. It set down four guidelines to decied what and wasnt a penalty.

 

Part of the the 4th guideline being

 

"a clause will be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is greater than that which ought to have been paid"

 

In my situation my minimum payments were only £5-£10, and I got charged £20 for being a few days late, am I right in saying this is clearly a penalty?

 

This might answer alot of your questions

 

http://www.consumeractiongroup.co.uk/forum/showthread.php?t=2503

[maestro451]

Thanks, maxie, ive read through all of that but im still not clear, to be honest I really dont understand the last post in the thread, come someone more knowledgeable carify these, maybe im just being dumb!

 

If a breach is less than the charge is it automatically considered a penalty? I use the example again if my minimum payment is £10 and they charge me £20.

[Maxie]

Thanks, maxie, ive read through all of that but im still not clear, to be honest I really dont understand the last post in the thread, come someone more knowledgeable carify these, maybe im just being dumb!

 

If a breach is less than the charge is it automatically considered a penalty? I use the example again if my minimum payment is £10 and they charge me £20.

 

Based on the law commssion report and my own knowledge I would say it was. I've got a case in court at the moment testing this very issue. I don't expect it to be challenged but we shall see!!

[Maxie]

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