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06/10/09

Dormancy fees could become more common

There is a growing trend for credit cards to charge you if you don't use them. This week American Express introduced a fee of £20 a year for existing customers who don't use their platinum cashback card. So-called dormancy fees are relatively rare, but as lenders struggle to recover lost profits they could become more common.

In an interview broadcast on Radio 4's Money Box programme on Saturday, 3rd October 2009, David Black, a banking expert from the research group De Facto was asked “who does this”?

David Black: "At the moment it's just Amex and Abbey and Alliance & Leicester; the latter two have something called the Santander Zero card which is very useful if you are going overseas because it doesn't charge anything on overseas transactions. They charge £10. It's rather more rife in the prepaid card market where those that charge typically are about £3 a month."

Interviewer: "These are the cards where you load them up with cash in the first instance and then if you don't use them and of course after two years I think the money disappears completely with some of them doesn't it?

David Black, De Facto: "It can do with some of them. As far as the credit card company is concerned they don't really want you to have one of their cards if you're not going to use it. They want you to have it, as they would say, front of wallet."

Interviewer: "But are we back in bank charges territory? Is this a reasonable charge for the extra cost of just keeping you as a customer without using your card?

David Black, De Facto: "There are some costs to the credit card company even if you don't use the credit card. They have capital adequacy requirements which basically means you've got a facility and they've got to have secure low yielding assets against that possibility."

Radio 4's Money Box programme contacted the top five credit card providers and they all said they had no plans to introduce these dormancy charges but they wouldn't rule out looking at the issue in the future.