Penalty charge cuts announced by some

Several credit card providers have announced they are reducing their penalty charges following pressure from the Office of Fair Trading (OFT).

Barclays, HSBC and Lloyds TSB have all agreed to cut charges for late payment and for exceeding your credit limit to £12 following a report from the consumer watchdog in April which said that the industry was overcharging customers with excessive penalty charges of typically £20-£25.

The reduction will take effect from 28th June for Lloyds TSB customers, HSBC will cut charges to £12 from the end of this month and charges will be reduced by Barclaycard on August 1st.

However Barclaycard revealed they will be increasing the standard rate of interest for purchases for about 10% of its customers. This will mean a rise of between 2% and 5%, within a range of 14.9% to 29.9% APR. Furthermore, they will be increasing the charges for cash advances from 21.9% to 27.9%.

Other card companies may follow suit and increase their interest rates by about 2% and reintroduce annual fees to compensate for the loss of revenue caused by the reduction in penalty charges.

Royal Bank of Scotland and HBOS are understood to have refused to cut penalties for late credit card payments by as much as their competitors.

Egg and Nationwide are yet to reveal their plans.

The National Consumer Council says consumers should "vote with their feet and avoid providers who refuse to make their charges fair".